By David Shepardson
WASHINGTON (Reuters) - AT&T Inc (N:T) and the U.S. Department of Justice are discussing conditions the No. 2 wireless carrier needs to meet in order for its acquisition of Time Warner Inc (N:TWX) to win government approval, sources familiar with the situation told Reuters on Thursday.
The $85.4 billion deal, hatched last October, is opposed by some consumer groups and TV companies on the grounds that it would give the wireless company too much power over the media it would carry on its own network.
Donald Trump, who has accused media companies like Time Warner's CNN of being unfair to him, criticized the deal on the campaign trail last year and vowed that as president his Justice Department would block it.
The proposed deal represents an early challenge for the Justice Department's new antitrust chief, Makan Delrahim, a Trump appointee who was confirmed by Congress in late September. Delrahim said at his confirmation hearing in May that he would decline to discuss antitrust matters with the White House.
Delrahim may be looking to ramp up pressure on AT&T. The Wall Street Journal reported that the Justice Department was laying the groundwork for a potential lawsuit aimed at stopping the deal if settlement talks did not work out. http://on.wsj.com/2gW1l9O.
The Journal reported that the outcome could go either way. It did not say what were the sticking points in the Justice Department's talks with the merging companies.
The Justice Department did not reply to requests for comment.
Shares of Time Warner were down 4.1 percent at $94.33 in afternoon trading, while AT&T's shares were down 1.2 percent at $33.15.
ALL POSSIBLE SCENARIOS
AT&T has said it expected the deal to close by the end of the year. AT&T executives have repeatedly expressed confidence that it would reach an agreement with the antitrust enforcer.
"When the DOJ reviews any transaction, it is common and expected for both sides to prepare for all possible scenarios," AT&T said in a statement on Thursday.
"For over 40 years, vertical mergers like this one have always been approved because they benefit consumers without removing any competitors from the market," AT&T said. "While we won't comment on our discussions with DOJ, we see no reason in the law or the facts why this transaction should be an exception."
Arguments over the deal have focussed on how much power a pay-TV provider should have in steering its customers to cable channels that it also owns. Critics from both parties argue that AT&T's purchase of Time Warner would give it the clout to steer customers to its own premium content.
Time Warner properties include CNN, HBO, the film studio Warner Bros and other coveted media assets.
Trump has not repeated his criticism of the deal since becoming president, and he has met with AT&T Chief Executive Randall Stephenson at least twice in 2017.
Delrahim underscored in May that he would not be swayed by political considerations.
"The independence of the decisions made in prosecuting and reviewing mergers as well as other conduct is a serious one that should be free from any political influence," he said. "They will be free if I am fortunate enough to be confirmed."
Wall Street played down the news on Thursday as a threat to the deal.
"These headlines may be more about increasing the (Justice) Department's leverage in negotiating conditions than a serious intent to try and sue to block the deal,” said Jennifer Fritzsche, analyst at Wells Fargo (NYSE:WFC). "We would note that nothing about the actual law or precedent for DOJ approving vertical mergers has changed. This is still a vertical merger and the DOJ would face the same uphill battle in court if it sued to stop it, same hurdles it faced a month or six months ago."