Friday, December 4, 2009
Comcast’s deal to acquire NBC from GE announced yesterday doesn’t break a whole lot of new ground from a deal structuring point of view. In general, GE contributes its NBC/Universal assets to the joint venture. For its parts, Comcast pitches in cash plus cable assts like the E! Network and the Golf Channel (which suddenly have many more synergies than they used to). Where this deal is likely to get interesting, though, is on the regulatory approval front.
Of course, it will need antitrust clearance through the HSR premerger approval process. Although this is a pretty well-trod path, the present Administration has already signaled on a number of occasions that the era of somnolent antitrust enforcement is over. This is a big transaction, vertically integrating a large segment of the media industry (content generation to distribution). Comcast already making its pitch that this deal will be good for consumers – “Universal movies could reach cable [subscribers] more quickly after showing in theaters.” Somehow, the thought of Land of the Lost and Drag Me to Hell showing up my TV faster than they otherwise would does not make me feel better.
As I noted in a post a couple of months ago, in media deals, the FCC also has an independent premerger approval process of its own. Although the FCC rarely stops deals from proceeding, it has a much broader charge than the FTC. The HSR process is focused on assessing the potential anti-competitive effects of a proposed merger. The FCC’s charge is to assess the proposed transaction on the basis of a “public interest” analysis. In assessing whether the Comcast/NBC deal is in the public interest, the FCC will determine whether the transaction will media diversity (“the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public.” Turner Broadcasting System, Inc. v. FCC), the quality of local services and the provision of new services, promote competition, and localism among others. That’s a lot of ground to cover. I’m sure Comcast’s legal counsel have been studying the FCC’s 2003 order in the GM/Hughes and News Corp merger for hints how this review is going to go. The structure of the transaction there was similar to this one. Although the vertical integration in the NewsCorp/Hughes transaction was up the chain and not down, the arguments and the public interest analysis done there should look familiar to people. This process, because it’s done on a case-by-case basis and because it’s not nearly has common as the HSR process, could take some time to accomplish.
Third, there’s Congress. Although Congress doesn’t have a premerger approval process, every cable TV subscriber has a Congressman and they must be heard. That fact no doubt generates what the Supreme Court has called “an independent interest in preserving a multiplicity of broadcasters.” Henry Waxman, Chairman of the House Committee on Energy and Commerce, released the following statement:
The proposed Comcast-NBC Universal joint venture agreement has the potential to reshape the media marketplace. This proposal raises questions regarding diversity, competition, and the future of the production and distribution of video content across broadcasting, cable, online, and mobile platforms. It is imperative that the FCC, the Justice Department, and the FTC rigorously assess whether this transaction is in the public interest.
I will work with Rep. Rick Boucher, Chairman of the Subcommittee on Communications, Technology, and the Internet, to schedule hearings on this matter at the earliest practicable date.
So, there will hearings in which assorted Congressmen ask questions and give their point of view on the usefulness of a Comcast/NBC link-up. That ought to be fun.
Update: Not to be outdone - Sen. Herb Kohl, Chairman of the Senate Subcommittee on Antitrust, Competition, and Consumer Rights has also released a statement of the proposed deal. Surprise, surprise, he'll be holding hearings, too!
This acquisition will create waves throughout the media and entertainment marketplace and we don't know where the ripples will end. Antitrust regulators must ensure that all content providers are treated fairly on the Comcast platform, and that Comcast does not get undue advantages in gaining access to programming. We plan a public hearing so that consumers can get a better sense of how this deal could affect their access to diverse programming and information, especially as they more often look to the internet for such services. It's critical that we preserve robust competition and promote innovative and emerging program delivery in this rapidly changing market.
Wednesday, December 2, 2009
The FTC is hosting a series of workshops on horizontal merger guidelines as part of its process of rethinking such guidelines. The first of the five workshops is today in DC. You can catch the webcast here. The schedule for the rest of the workshops and materials is here.
You'll remember that early last month Burlington Northern announced that Buffet's Berkshire Hathaway would acquire the balance of BNSF's stock that it did not already own. Recently reported that the CEO of Burlington Northern Santa Fe waived his rights to compensation under the company's change of control agreement/golden parachute.
In general, seeing incumbent management waive their rights like this is a sign that the buyer and seller's management have a reasonably high level of confidence that the deal will work out well over the long term for both sides. Sometimes "working out well" involves a lucrative new contract for management. This case appears to be following Buffet's typical M.O. of buying strong management teams and leaving them in place to continue to run the business. So, it's not really a surprise that the CEO would waive his rights under the change of control agreement.
If (x) your Date of Termination (or the date of delivery of the applicable Notice of Termination) occurs during the Agreement Term and is coincident with or follows the occurrence of a Change in Control [ed: up to a period 24 months following a change in control] or (y) if you have a disability during the Agreement Term after the occurrence of a Change in Control, then you shall be eligible for payments and benefits in accordance with, and to the extent provided by, Section 4, with such eligibility determined on the basis for your termination of employment.
Payments are also due in the event the employee resigns for "good reason" following a change in control. Good reason includes the typical list of things like diminution of duties, salary, forced relocation beyond 50 miles, failure to pay salary and bonuses, failure to continue to provide benefits, etc.
The payments due under the contract are set equal to 2.5 times the highest 12 month salary over the previous 24 months (including deferred comp) and 2.5 times the targeted bonus for the current year. Of course, it goes without saying that the agreement provides for continuation of health insurance benefits for 24 months for the terminated employee under COBRA. Premiums to be paid by the company. To the extent there are tax implications - "parachute taxes" that are raised by payments under this agreement, the covered employee will be eligible for a tax gross-up payment as well.
What? Your employer doesn't pay your COBRA premiums and make gross-up payments to you?
Before I get too worked up, it's worth remembering the purpose of the Golden Parachute/Change of Control Agreement. In general, we want senior managers not to recoil in fear at the first sign of a takeover. Indeed, we'd like to create incentives for senior managers to be open to the possibility of being acquired. During the takeover boom of the 1980s that generated so much of the takeover case-law we now have, incumbent management fighting off potential acquirers was the constant theme. That particular theme has since receded from view, in part because the prevalence of change of control agreements has made senior managers more open to the prospect of losing their jobs.
The fact that Burlington Northern's CEO has waived his right to payments under the change of control agreement suggests that he is happy with the new boss and not likely going anywhere. That's a good thing.