Why the AT&T-Time Warner Decision Is Good News for CVS

SMITH BRAIN TRUST – A federal judge’s decision to allow AT&T’s bid for Time Warner to proceed without conditions not only blunts the government’s objections to the $85.4 billion deal, it also may set the stage for a slew of future so-called vertical megamergers.

Among those megamergers is CVS’s proposed $69-billion takeover of Aetna health, says David Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business. He notes that the Justice Department is “now less likely” to block the tie-up, valued at $202 for each Aetna share. Shares of CVS and Aetna both jumped higher on the AT&T-Time Warner news.

Despite the government’s objection to the deal, the court’s decision, says Kass, wasn’t altogether surprising.

“Vertical mergers have traditionally not been challenged by either the Justice Department or the Federal Trade Commission,” Kass says. “They are perceived as not being anti-competitive since they do not eliminate a competitor nor create market power with the ability to raise prices as could be the case for horizontal mergers.”

The AT&T/Time Warner merger brings together a media powerhouse with a telecommunications giant, in a marriage that some expect to reshape both industries.

The combined company will have an extensive distribution reach, across wireless and satellite television, and a blockbuster content library that includes HBO, CNN, TNT, Cartoon Network and the whole Warner Bros. Entertainment complex.