CURRENT MONTH (June 2018)
International M&A
European Commission Unconditionally Clears Comcast’s Proposed Acquisition of Sky
By David R. Venturella
On June 15, 2018, the European Commission (the “Commission”) unconditionally cleared Comcast’s $31 billion bid for Sky plc (“Sky”). The proposed transaction would combine Sky, the leading pay-TV operator in certain parts of Europe, with Comcast Corporation (“Comcast”), owner of Universal Pictures and TV channels such as CNBC, Syfy and E!. The Commission found that Sky and Comcast are mainly active in different markets in Austria, Germany, Ireland, Italy, the UK and Spain and compete with each other only to a limited extent. Because Sky and Comcast are active at different levels of the market, the Commission focused on whether Comcast would be able to limit access by Sky’s competitors to its films and other TV content or to its TV channels; whether Sky would have the incentive to cease purchasing content from Comcast’s competitors; and whether Sky could prevent competing channels from accessing its platform. Based on its review, the Commission found that pay-TV distributors would continue to have access to content from Comcast’s competitors and that Sky would have little incentive to cease purchasing content from Comcast’s competitors. Further, the ability to shut out competing channels from accessing Sky’s platform was significantly mitigated by the regulatory landscape in the UK, Germany and Austria. Accordingly, the Commission concluded that the transaction would raise no competition concerns. Comcast’s bid to acquire Sky is a counter-bid to an offer by Twenty-First Century Fox, whose offer was also unconditionally cleared by the Commission in April.
M&A Law
Changes to CFIUS
By Arooj Nazir
On June 18, 2018, the U.S. Senate passed legislation reforming the oversight and authority of the Committee on Foreign Investment in the United States (“CFIUS”). CFIUS is an inter-agency committee that reviews the national security implications in U.S. companies or operations. The Senate bill allows CFIUS to review transfers of minority interests in companies dealing in high-tech sectors and “critical technologies.” The bill must still be approved by a House-Senate conference committee and signed by the President before it can become law
T-Mobile and Sprint Request FCC Approval to Merge
By David R. Venturella
On June 18, 2018, T-Mobile US, Inc. (“T-Mobile”) and Sprint Corporation (“Sprint”) filed an application seeking Federal Communications Commission (“FCC”) approval to transfer control to T-Mobile of the licenses and authorizations held by Sprint and its affiliates. Pursuant to Sections 214 and 310(d) of the Communications Act of 1934, as amended (the “Act”), when a proposed transaction in the communications industry involves common carrier authorizations or radio licenses under the Act, the FCC must determine whether the proposed transfer of control will serve the “public interest, convenience, and necessity.” The FCC evaluates the proposed transaction in light of traditional antitrust principles as an essential component of its review. Accordingly, T-Mobile and Sprint argued, among other things, that the merger would benefit consumers and promote competition between the merged entity and its competitors, namely Verizon, and AT&T, by allowing for the rapid deployment of a nationwide 5G network. The FCC typically follows an 180-day timeline for reaching a decision on applications, but such timeline is considered a guideline and not a requirement.
AT&T Acquires Time Warner Following Favorable Ruling in Federal District Court
By Tyler Huseman
On June 14, 2018, AT&T, Inc., the multinational mobile and broadband conglomerate (“AT&T”) announced it had completed its acquisition of Time Warner Inc., a global media and entertainment giant (“Time Warner”). The Department of Justice (“DOJ”) had challenged the merger and kept it on hold since October 2016, culminating in a trial before the United States District Court for the District of Columbia. In his June 12 opinion, Judge Richard Leon refused the DOJ’s request to enjoin the merger, finding that the DOJ failed to meet its burden to establish that the transaction was “likely to lessen competition substantially.” Randall Stephenson, chairman and CEO of AT&T said “We’re going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers” and that “the future of media entertainment is rapidly converging around three elements required to transform how video is distributed, paid for, consumed and created. Today, AT&T brings together Premium Content … Direct to Consumer Distribution … [and] High-Speed Networks….” Under the terms of the merger, Time Warner shareholders received 1.437 shares of AT&T common stock in addition to $53.75 in cash per share of Time Warner.
Minority Shareholders Permitted to Proceed with Breach of Fiduciary Duty Claim Against Controlling Shareholder
By Michael Caine
On June 25, 2018, Judge Sam Glasscock III ruled that minority shareholders (the “Minority Shareholders”), of Straight Path Communications (“Straight Path”) may proceed with their breach of fiduciary duty claims against Howard Jonas, the controlling shareholder (“Controlling Shareholder”) of both Straight Path and its parent company, IDT Corporation (“IDT”). Minority Shareholders claimed that they were directly harmed by actions of the Controlling Shareholder when he forced Straight Path to settle an indemnification claim with IDT that, if exercised, would have allowed shareholders to recover for a $600 million FCC fine, ultimately keeping more of the proceeds from the Verizon sale for shareholders. The Controlling Shareholder argued that the claim was derivative and should have been dismissed. To determine if a claim is derivative or direct, the Court looks at (1) who suffered the alleged harm and (2) who would receive benefit of any recovery. Judge Glasscock reasoned that the shareholders made less from the sale of the company than they would have otherwise and the Controlling Shareholder benefited directly because IDT avoided a hefty liability claim that would have bankrupted a company in which he was the controlling shareholder and members of his family owned a significant number of shares. “When a controller improperly uses her control to extract a special benefit in the sale itself, at the expense of the consideration received by stockholders in exchange for their interest in the company, the injury, and the recovery, run directly to the former shareholders.”
