AT&T/Time Warner Antitrust Decision Could Impact Laundry Biz
Editor’s Note: TRSA General Counsel Steven John Fellman wrote this article.
On June 12, Judge Richard Leon of the U.S. District Court of the District of Columbia approved AT&T’s $85.4 billion merger with Time Warner.
The case was significant in that the proposed transaction was not a horizontal transaction, i.e., the merger of two companies in the same line of business, but a vertical integration of two companies in the same supply chain. It also involved a recognition by the court that historical market definitions may not be applicable in the digital world.
The Department of Justice argued that the proposed transaction would injure consumers as the combined company would have the power to raise prices and would raise prices.
In a 172-page opinion, Judge Leon disagreed. He rejected the government’s economic argument and warned the Department of Justice not to attempt to seek an injunction prohibiting the parties from continuing the transaction pending an appeal. The Judge found that the scope of the media business has expanded dramatically, and DOJ’s arguments did not fully appreciate the change.
Immediately after the decision was announced, Comcast made a $65 billion offer to purchase certain assets of 21st Century Fox which Fox had agreed to sell to the Walt Disney Co.
The AT&T opinion opens the door for more vertical transactions. Large corporate buyers will be looking for companies in other industries with good cash flows and which give the buyer the potential of using its existing platform to expand the scope of the seller’s operations. Traditional market definitions that formed the basis of a preview of antitrust case law may no longer apply in an economy dominated by Amazon, Apple, Google and similar companies.
Linen, uniform and facility services companies could become takeover targets as they have large customer bases and established delivery systems that could be expanded to include additional product lines. Further, they have good cash flows and in many instances are of a size that would attract buyers. Major linen, uniform and facility services companies service millions of workers every day and have hundreds of production facilities all across the country. Furthermore, those workers aren’t one-time purchasers, but they are under contract to purchase services for a multiyear period. What a great target!
Traditionally, increased concentration in the linen, uniform and facility services industry has been the result of one horizontal competitor buying another horizontal competitor.
But after the AT&T decision, the floodgates may open. Nontraditional buyers may seek out linen, uniform and facility services companies as a way of expanding their existing business platforms. If a company such as Amazon can buy Whole Foods, isn’t it reasonable to expect it to consider buying a company serving several million customers per day under multiyear contracts?
For more information, contact Steve Fellman at sfellman@gkglaw.com.