© Reuters. Smartphone with AT&T logo is seen in front of displayed Time Warner logo in this picture illustration
By David Shepardson
WASHINGTON (Reuters) – The U.S. Justice Department said on Thursday it would appeal a federal judge's approval of AT&T Inc's (N:) $85.4 billion acquisition of Time Warner, raising the prospect barely a month after the deal closed that it could be undone.
AT&T was sued by the Justice Department on antitrust grounds, saying that the deal would harm consumers, but U.S. District Judge Richard Leon last month approved the deal, allowing it to move forward following a lengthy trial. The merger, first announced in October 2016, was also opposed by President Donald Trump.
Leon ruled that the tie-up between AT&T's wireless and satellite businesses with Time Warner's movies and television shows was legal under antitrust law.
AT&T general counsel David McAtee said the company is "surprised" the Justice Department is appealing. "We are ready to defend the courts decision at the D.C. Circuit Court of Appeals," McAtee said in a statement. “The courts decision could hardly have been more thorough, fact-based, and well-reasoned."
A Justice Department spokesman declined to comment.
AT&T shares fell 1 percent after the bell.
The Justice Department opted in June not to seek an immediate stay of the court's approval of the merger, allowing the merger to close on June 14, though the Justice Department still had 60 days to appeal the decision approving the merger. The government's notice of appeal filed in U.S. District Court in Washington did not disclose on what grounds it intends to challenge the approval.
Leon had sharply urged the Justice Department not to seek a stay of his ruling, saying that it would be "manifestly unjust" to do so and not likely to succeed. In his ruling, he said the government had failed to show competitive harm.
AT&T told the Justice Department in a June 14 letter that it would manage the Turner networks as part of a separate business unit and take other steps until February 2019 or until any government appeal.
AT&T also said that in the short term it would have no role in setting Turner prices and the number of Turner employees and target compensation and benefits would remain "largely unchanged." AT&T also said it would implement a firewall between Turner and AT&T to prevent the exchange of sensitive information of unaffiliated programmers or distributors.
In 2016, the Justice Department had demanded that AT&T sell the Turner networks, which include CNN, as part of approving the merger.
John Bergmayer, senior counsel at advocacy group Public Knowledge, said that since the deal was approved AT&T has raised prices for some video and wireless services.
"The AT&T-Time Warner transaction is a bad deal for consumers and competition," he said. "Judge Leons decision contained numerous errors, and we believe the DOJs position should be vindicated."
Deals approved by a federal judge have been undone on appeal in the past.
In 2001, H.J. Heinz Co called off its acquisition of Beech-Nut after an appeals court overturned a lower courts decision to allow the merger. The Federal Trade Commission had argued the deal would have merged the No. 2 and No. 3 baby food makers and that competition would be "lessened substantially" in the $800-million-a-year U.S. market for baby food if it were to go forward.
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