Get ready for the brawl to begin.
The challenge, which is scheduled to be considered in the U.S. District Court for Washington, has received a particularly high level of scrutiny since President Donald Trump routinely attacks CNN on Twitter.
AT&T announced the purchase of Time Warner for $108.7 billion including net debt, in October 2016. That month, then-candidate Trump said he would reject the merger because it would concentrate too much power in AT&T's hands. The government sued to block the deal in November.
Interestingly, around the time the lawsuit was announced a large cross-section of the most well-known activist investors began accumulating shares. At least six high-profile insurgent managers now own shares in Time Warner, according to recent securities filings.
Corvex Management's Keith Meister, Greenlight Capital's David Einhorn, Sachem Head Capital Management's Scott Ferguson, a Bill Ackman protégé, all accumulated Time Warner shares in the fourth quarter of 2017, according to securities filings. In addition, other activists, Tom Sandell of Sandell Asset Management, Third Point's Dan Loeb and The Children's Investment Fund's Christopher Hohn, all maintained less than 1% stakes they had accumulated previously.
In addition, Lazard's shareholder advisory group notes that other notable investors have accumulated shares as well, including Carlson, 0.6%, Och-Ziff, 0.5%, Senator, 0.7%, Baupost, 1% and Viking Global, 0.6%.
Why the accumulations? A letter occasional activist Einhorn sent to investors in January may provide some insight. According to the letter, obtained by TheStreet, Einhorn's fund, Greenlight Capital, repurchased shares in Time Warner at an average cost of $89.72, after the shares fell following the U.S. Justice Department's November lawsuit. Einhorn's cost basis is well below Time Warner's recent share price of $94.80 a share.
Einhorn said he believes the DOJ has a "weak" antitrust case and that he believes the merger is likely to be approved despite being challenged in court, according to the letter. Nevertheless, he contends that the TWX shares are cheap even if the government prevails and the deal is broken up.
He added that Time Warner has several strategic options to create value if the AT&T deal falls apart, noting that TWX suspended its buyback program while the deal has been pending. He added that TWX has become "under-levered."
The comments suggest that Einhorn—or any of the other activist funds that own shares—could agitate to drive a newly independent Time Warner to hike leverage and buy back shares if the deal collapses.
Will the deal collapse? It's unclear, though the Federal Judge overseeing the case, Richard Leon, ruled on Tuesday that the White House won't need to turn over all records of communications with the Justice Department over the lawsuit. The merging companies asserted that the challenge to the merger did not originate because of "any credible antitrust concerns" but rather because "one of the Time Warner networks to be acquired, CNN, has engaged in political speech disfavored by President Trump."
The decision can't be a positive one for the merging parties—Time Warner and AT&T likely had hoped to find evidence in White House-DOJ communications that the suit did not emerge because of legitimate antitrust concerns.
However, as Einhorn suggests, the investment could be a win for activists even if the deal unravels.
—Chris Nolter contributed to this report