The AT&T (T)   and Time Warner  (TWX) ruling is reverberating throughout media and telecom after hours.

Judge Richard Leon cleared AT&T's purchase of Time Warner for $85.4 billion, or $108.7 billion including debt, after the market close on Tuesday.

Shares of AT&T are down about 1.6% to $33.78 after hours. Time Warner gained $4.9% to $100.96. 

AT&T and Time Warner argued that the government rarely blocks vertical mergers that do not remove a competitor from the market. Vertical deals theoretically can lead to lower prices if the merger partners can lower their costs while maintaining the same field of competitors. 

Comcast (CMCSA) hoped that Leon would clear the merger, so that it could launch a bid for Fox (FOXA) .

Disney (DIS) agreed to buy most of Fox's film, television and pay-television distribution assets in December for $52.4 billion, or more than $66 billion including assumed debt, over a deal with Comcast. Rupert Murdoch was not comfortable selling the business to Comcast after the government sued to block AT&T's purchase of Time Warner.

Comcast and AT&T both own pay-TV distribution systems. If the cable group were to acquire Fox's media businesses, Murdoch feared, the deal could encounter the same resistance to vertical consolidation that caused Justice to sue AT&T and Time Warner.

Department of Justice anti-trust chief Makan Delrahim suggested that Disney's purchase of Fox could work at The Deal's Corporate Governance conference in June. "They, I think, had good advice and carved out surgically what a transaction that might be doable, and again, who knows where that transaction leads," Delrahim said at the event.

Comcast dropped 3.5% to $31.25 after hours on the prospect of a bidding war. Fox gained 4.8% to $42.50 while Disney dropped 1.75% to $102.50.

Leon's ruling also has implications for pharmacy chain CVS's (CVS) purchase of health insurer Aetna (AET) $69 billion, or $77 billion including assumed debt.

Like AT&T-Time Warner, the combination represents vertical consolidation. 

CVS rose 0.5% to $67.10 after hours, and Aetna gained 2.9% to $186.00.

The order has limited implications for Sprint (S) and T-Mobile (TMUS) , who plan their own mega-merger.

Unlike AT&T's vertical merger with Time Warner, the combination of Sprint and T-Mobile is a vertical merger that would remove a national wireless carrier from the market.

The Department of Justice based its lawsuit against the AT&T and Time Warner on the potential increase in cable bills. A merger that would reduce the field of wireless competitors could trigger an increase in wireless prices. However, Delrahim has Suggested that a reduction from four wireless carriers to three is not necessarily verboten. "I just said I am not smart enough to figure out any magical number in any market," Delrahim said at The Deal's conference.

Sprint rose 3% to $5.46 after the market close. T-Mobile dropped 0.1% to $58.30.

AT&T and Time Warner argue that they will actually reduce cable bills. The companies plan to use data from AT&T's wireless, satellite and cable television subscribers to sell targeted advertising on the Turner networks, which include CNN, TBS and TNT.

In court testimony, AT&T Chairman and CEO Randall Stephenson compared the post-merger company to Facebook (FB) and Alphabet  (GOOGL) , which have used personal data to dominate digital advertising. AT&T can sell the targeted ads for 3 to 5 times the amount it gets for a traditional television spot. 

A merged AT&T and Time Warner could also borrow from the playbooks of Netflix (NFLX) and Amazon (AMZN) , by using data about popular programs, films and actors to tailor their productions, Stephenson testified.

Facebook was flat at $192.40 after hours, while Alphabet was stable at $1,148.19.

Netflix dropped about 0.1% to $363.40, and Amazon dropped 0.2% to $1,695.86.

Alphabet, Amazon, Comcast and Facebook are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells GOOGL, AMZN, CMCSA or FB? Learn more now.

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