Trump's CNN attacks may hobble legal case to block AT&T-Time Warner deal

WASHINGTON/NEW YORK (Reuters) - U.S. President Donald Trump’s broadsides against cable network CNN may complicate the U.S. government’s legal case if it decides to block AT&T’s deal to buy media company Time Warner, according to legal experts.

Trump’s repeated claims that CNN produces “fake news” and other criticisms of the network could hurt legitimate legal arguments the Department of Justice may use to show the deal gives the company too much power over media rivals and is bad for consumers.

“His comments have soiled the process,” said John Kwoka, an economics professor at Northeastern University. “If I were AT&T’s lawyers I would certainly introduce them into the evidentiary record as meddling with what is really a law enforcement process.”

The fate of AT&T Inc’s (T.N) $85.4 billion deal to buy Time Warner Inc (TWX.N), hatched in October 2016, looks set to end up in court as the two sides have so far failed to agree on what conditions AT&T needs to meet in order to gain antitrust approval.

Justice Department staff have recommended that AT&T sell either its DirecTV unit or Time Warner Inc’s (TWX.N) Turner Broadcasting unit, which includes news company CNN, a government official told Reuters on Thursday, on the grounds that a combined company would raise costs for rival entertainment distributors and stifle innovation.

AT&T chief executive Randall Stephenson said on Thursday he would not sell CNN to win antitrust approval and would fight the government in court if the two sides could not reach an agreement.

“If we feel like litigation is a better outcome then we will litigate,” Stephenson told the New York Times DealBook conference on Thursday. He said the company had been ready to go to court the day the deal was announced in October 2016.

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The deal took on broader political significance soon after it was announced when Trump attacked it on the campaign trail last year, vowing that as president his Justice Department would block it. He has not commented on the transaction since taking office in January.

Trump’s aggressive campaign comments have harmed legal arguments of his administration before.

Earlier this year, an appeals court refused to reinstate a ban on travelers from a group of Muslim-majority nations on the grounds that it illegally targeted people of one religion.

Explaining the decision, the chief judge cited a statement on Trump’s campaign website calling for a ”total and complete shutdown of Muslims entering the United States.” The U.S. Supreme Court later partially reinstated the travel ban.

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Stephenson has rejected the Justice Department’s arguments against the deal, saying it was a classic “vertical” merger that removed no competitors from any market and denied the company would be too powerful.

He said a combined AT&T and Time Warner would create a data and advertising company competing against the newest and most disruptive entrants into the media sector: Amazon.com Inc (AMZN.O), Facebook Inc (FB.O), Netflix Inc (NFLX.O) and Alphabet Inc’s (GOOGL.O) Google, not other wireless phone companies.

Stephenson told the conference he has no reason to think Trump would be a factor in the deal’s approval and said he hoped the matter would be settled well before the April 22, 2018 deadline when parties can walk away from a deal.

The head of the Justice Department’s antitrust division, Makan Delrahim, said in a statement late on Thursday that he has “never been instructed by the White House” on the AT&T deal.

AT&T told the Justice Department on Monday that it believed it had complied with all legal requirements for the deal to be cleared, a person briefed on the matter said. That sets a deadline for the government to sue if it wants to block the merger. Officials said that detail could be as early Nov. 27.

Shares of Time Warner closed down 1.6 percent at $87.05. AT&T shares rose 1.6 percent to $34.00.