Time Warner stock fell more than 3% Thursday on the news that the U.S. government may sue to block AT&T's acquisition of the media company.
Dow Jones, which reported the news, also noted that the Justice Department and AT&T are "discussing possible settlement terms that would lead to the deal winning government approval with conditions attached."
These arrangements, known as consent decrees, are common for mergers.
"For over 40 years, vertical mergers like this one have always been approved because they benefit consumers without removing any competitors from the market," an AT&T spokesman said Thursday. "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."
The Department of Justice declined to comment, as is its custom on pending matter like this.
AT&T (T) announced its intent to purchase Time Warner just over a year ago. CNN is a unit of Time Warner (TWX). The media company also owns Warner Bros., HBO, TNT and a portfolio of other channels.
The deal is being reviewed by the antitrust division of the Department of Justice. AT&T representatives have been in talks with U.S. officials about the terms of the consent decree for months.
Dow Jones said the Justice Department is "actively considering" an antitrust lawsuit, but said no decision has been made.
Analysts at Cowen Research in Washington said they believed "the press leak is likely a negotiating tactic" by the government "and that the deal is still likely to close."
"It would be unprecedented for the DOJ to block a vertical merger," Cowen analyst Doug Creutz said.
And even if the government does sue to block the deal, "we think AT&T would fight and likely win," his colleague Colby Synesael added in a research note to investors.
In any case, it is not unusual for the DOJ to negotiate with a company while preparing a potential lawsuit on a parallel track.
AT&T pointed this out in its statement on Thursday.
"When the DOJ reviews any transaction, it is common and expected for both sides to prepare for all possible scenarios," the company said.
AT&T stock slipped about 1% in the wake of the report.
AT&T executives have already planned for a potential legal challenge to the deal. The executives say a vertical integration of this kind -- combining a wireless giant with a entertainment and news provider -- does not pose an antitrust threat and does not harm competition in the marketplace.
Thursday's news is likely to rekindle concerns about possible Trump administration interference in the pending deal.
On the campaign trail, President Trump publicly vowed to block the merger. He frequently criticizes CNN on Twitter and in public appearances.
But the Justice Department has historically reviewed mergers and acquisitions with an independent eye, looking at the long-term effects on consumers, not the current president's feuds.
Regulatory bodies in more than a dozen other countries have already given their approvals to the deal. The U.S. is the final country from which AT&T needs approval.
AT&T and Time Warner executives have previously said that they expect the deal to close and take effect by the end of the year.
