CBS Presents Formal Offer to Buy Viacom Below Current Valuation

The broadcast television network, CBS, has offered to buy the TV and film company, Viacom. While CBS is best known for controlling the CBS broadcast network, Showtime, and streaming network, CBS All Access, Viacom is popular for its cable channels like MTV and Nickelodeon, and its movie studio, Paramount. The Redstone family, led by media magnate Sumner Redstone, has 80% of the voting power for both companies.


The conditions of the all-stock bid, however, are not equal for both parties. Sources have said that CBS has valued Viacom at less than its market value and CBS would assume control. Sources have also said that Leslie Moonves, current CEO and Chairman of CBS, would be leading the new combined entity for two years at least. In deal negotiations, it is unusual to start valuing the target company at a discount.


The negotiation activity around the companies has been reflected in the share prices of both. As a result, on April 2 (the day after the conditions of the bid appeared in the news), CBS stock closed at $52.86, up about 4.2%. Viacom’s stock, valued at $29.42 per share, was down more than 3%.


In February, CBS and Viacom set up special committees to explore the merger. Nevertheless, this is not the first time that the two companies have explored a merger deal. In 2016, the negotiations failed due to price and governance issues. Redstone is trying again to combine both companies in an effort to increase the volume of the two entities in a critical moment of consolidation and rapid change in media and entertainment.


The merger, if successful, would bring back together the two media companies more than ten years after their spin-off. When the split took place in 2005, Viacom was expected to be the fast-growing company, but currently CBS is the stronger one, in part due to its strong programming lineup. CBS has also gained success in the streaming market, a sector dominated by Netflix.


Since 2016, Robert Bakish, president and CEO of Viacom, Inc., has taken several steps to improve the company’s performance. Some of the measures include improving relations with cable and satellite companies and cutting costs. On one hand, according to the analyst Brian Wieser, Viacom’s weakness is not a surprise because “they haven’t really established many zeitgeist-changing programs or content,” he said. On the other hand, more optimistic opinions have suggested that CBS may ultimately pay a premium for Viacom stock.

CBS Presents Formal Offer to Buy Viacom Below Current Valuation (PDF)

The U.S. and China are Not Far From a Trade War

If there was any lingering hope China would not hit back against the Trump administration’s duties on imports of aluminum and steel, it has officially been crushed. 128 U.S. products, from fruits to wine, will be facing a 25% tariff increase. Further, China’s Ministry of Commerce announced, despite its obligations to the World Trade Organization to reduce tariffs on goods such as fruit and ethanol, it would increase tariffs on those products by an extra 15%.


In addition to imposing tariffs on steel and aluminum, Trump had previously threatened to impose protective duties on $60 billion of other Chinese products. On April 3, his administration announced a list of 1,300 proposed tariff increases designed to penalize China for disadvantaging U.S. companies in the Chinese market. Trump is seeking to retaliate against China’s theft of  U.S. intellectual property, and the newly proposed tariffs, the administration says, are equal to “the harm caused by China’s unreasonably technology transfer policies.”


Financial markets have been rattled over fear of a U.S.–China trade war and the damage it could cause to world growth. China’s Ministry of Commerce indicated the move was intended to push Trump to refrain from the broiling trade war, arguing U.S. tariffs on Chinese products violate World Trade Organization rules.


Taking tough action on China’s unfair trade practices was a center piece of Trump’s campaign. Yet as he attempts to deliver on this promise, stock markets have plummeted and major U.S. companies, including General Electric and Goldman Sachs, are pushing back.


There is strong support in the technology and finance industries for the idea that China blocks off valuable markets from American competition.  Some major players, such as Apple, Google, and Microsoft, have been supportive of targeting China’s trade practices. But whether firing back at China with tariffs will work as a solution is less clear.


The Information Technology Industry Council, and advocate group for those companies, has said it is not happy with using tariffs as the primary remedy. Other technology and investment companies now say Trump’s measures could severely damage supply chains they have built over decades.


The U.S. faces a tricky balancing act between cracking down on China’s allegedly unfair economic practices and prompting it to scale up those practices.  Trump leaves no indication he intends on scaling back punitive measures. At least in the short term, uncertainty and fear of a trade war will continue to influence global markets.

The U.S. and China are Not Far From a Trade War (PDF)

Streaming Soon: A Fight Over AT&T, Time Warner, and the Future of TV

The future of media has its day in court. On Thursday, March 22, 2018, the trial between AT&T and the U.S. DOJ over AT&T’s proposed $85 billion acquisition of Time Warner began. How Judge Richard Leon rules could shape the future of video, as the tug of war between cable companies and streaming services has seen millions of consumers cut the cord in favor of the latter. The key question at trial is what impact the merger will have on American consumers. AT&T believes that the merger would help the company remain competitive in the marketplace against tech giants such as Netflix and Amazon, while offering premium content at lower rates. The DOJ believes the exact opposite; the merger would give AT&T too much power, resulting in higher rates for consumers.


Justice Department lawyer Craig Conrath’s opening statement claimed the merger would hike rates for consumers by $0.45 a month on average, and that “Time Warner would be a weapon for AT&T because AT&T’s competitors need Time Warner.” In addition, the DOJ believes that the merger would stunt innovation in online video. AT&T’s leading lawyer, Daniel Petrocelli, claimed the merger would lead to a decrease in rates by $0.50 a month. He explained that the merger would give AT&T access to better customer data, leading to more effective “addressable advertisements.” These advertisements are tailored to specific households based on viewer data, and are nearly triple the cost. The increase in advertisement costs for large companies would lead to a decrease in rates for the consumer. But as Matt Wood, policy director at Free Press, a consumer advocacy group, suggests, “mergers create cost savings, but they don’t have to pass them along to consumers unless there’s competitive pressure.”


If the government loses, we could see an increase in vertical integration between distributors and content providers. Steven Salop, a professor of economics and law at Georgetown University Law School believes that a merger “could direct the future path of the industry.” On the other hand, if the government wins, antitrust regulators would have a huge advantage in ending any similar, future mergers. Nonetheless, the outcome’s effects are not limited to media mergers either; it could have rippling effects in other sectors, such as CVS’s $69 billion bid for insurance giant Aetna.

Streaming Soon- A Fight Over AT&T, Time Warner, and the Future of TV (PDF)

Chevron Attorney Admits What Trump Won’t

Amidst a major lawsuit accusing Chevron and four other energy companies of misrepresenting their contributions to global warming, Chevron attorney, Theodore Boutrous, claimed it does not dispute that humans have induced climate change at a court hearing in late March.


Both Oakland and San Francisco filed a lawsuit against ConocoPhillips, Exxon Mobil Corp, Royal Dutch Shell PLC, BP PLC, and Chevron last year. The cities are pursuing an abatement fund as a remedy for the flooding they claim is directly linked to global warming. Democratic party leaders filed the lawsuits as a means to confront the massive issue of climate change in the judiciary. To date, more than 900 lawsuits regarding global warming span 25 different countries.


The United States’ climate change policy has dramatically changed since President Donald Trump was appointed. In addition to expressing his intent to remove the United States from the Paris Agreement, President Trump has gone as far as advocating for heavier fossil fuel production. The President has unapologetically stated that his administration is “putting an end to the war on coal,” and has even stated climate change was a hoax.


Most recently, the President issued a directive ordering the federal government to cease using climate change as a factor in its decision-making, even though the climate has been a consideration in every major court decision within the past few years. The directive further revealed the Trump Administration’s plans to table the Clean Power Plan. The Obama Administration implemented the plan in 2015 as a means to reduce power plants’ carbon pollution across the nation.


In the heat of this political pivot in climate change, plaintiffs’ lawyers will also have to overcome tricky precedents surrounding tort claims relating to global warming. For example, Kivalina v. ExxonMobil is a Ninth Circuit decision from 2009, which granted a motion to dismiss a case where Eskimos sought monetary relief for damages they suffered as a result of climate change.


The oil giants are confident this lawsuit will also get thrown out. In their recent filing, they argue that only Congress can legally monitor carbon emissions. The oil companies rely on AEP v. Connecticut, a Supreme Court decision from 2011, determined that climate change “is an undertaking for the political branches.”


Although none of the companies admitted liability for climate change, all of them acknowledged the scientific merits of global warming.

Chevron Attorney Admits What Trump Won’t (PDF)

Court of Appeals Upholds “Blurred Lines” Ruling

The lines were blurred as to whether Robin Thicke and Pharrell Williams copied Marvin Gaye’s 1977 disco song, “Got to Give it Up.” Their song, “Blurred Lines,” was the biggest hit of 2013. Gaye’s family claimed Thicke copied the song without permission and brought the case to trial in 2015. After a seven day trial, the jury initially awarded Gaye’s family a damages award of more than $7 million. The jury was only able to rely on the sheet music, and not on recordings of the two songs.


On March 21, 2018, in a 2-1 decision, the Ninth Circuit upheld the jury’s finding that Thicke and William’s song “Blurred Lines” infringed on Gaye’s copyright song. The court also awarded damages in the amount of $5.3 million. The Gaye estate will also receive 50 cents per interest on future revenue from the song.


Opponents of the case warned that the suit could have a “chilling effect on creativity.” In her dissent, Judge Jacqueline Nguyen said the decision allowed the copyright of something that had never been copyrighted before: musical style. She said Thicke’s song only resembled Gaye’s in style and that the decision “strikes a devastating blow to future musicians and composers everywhere.” Over 200 musicians filed a brief in favor of Thicke and Williams, saying that the ruling would have an “adverse impact…on the music industry and would “eliminate[e] any meaningful standard for drawing the line between permissible inspiration and unlawful copying.”


The majority rejected the idea that the decision was a devastating blow on music. The court suggested that the case actually rested on the skills of Thicke’s attorneys. Gaye’s attorney applauded the ruling, saying that the decision encourages writers to create original work.


Drawing from the court’s dissent, Thicke’s attorney stated that there would be further appeal.

Court of Appeals Upholds Blurred Lines Ruling (PDF)

Did Tesla Breach its Fiduciary Duty to Shareholders in SolarCity Acquisition?

On Wednesday, March 28th, 2018, a Delaware judge allowed lawsuits by Tesla Inc. shareholders against CEO, Elon Musk, and the Tesla Board to move forward over the company’s 2016 SolarCity acquisition. Vice Chancellor Joseph Slights of the Delaware Court of Chancery rejected Tesla’s motion to dismiss the seven derivative and direct claims brought by Tesla shareholders on behalf of themselves and a putative class of Tesla stockholders. Among the claims, shareholders allege that Musk and the Board breached their fiduciary duties to shareholders in approving the deal to buy SolarCity — a company on which Musk also served as Chairman.


The complaint alleges that Musk and the Board did not act in the shareholders’ best interests when Tesla, an electric car company, acquired cash-strapped SolarCity, a solar energy company, for $2.6 billion in June of 2016. At the time, SolarCity was facing serious liquidity challenges. In the three years leading up to the merger, its debt had increased thirteen-fold, totaling $3.56 billion, its stock value had decreased 64% from February 2015 to February 2016, and it was facing litigation alleging misappropriation of trade secrets and intellectual property. Amidst this liquidity crisis, the shareholders allege that the acquisition amounted to “a bailout” of SolarCity that benefited the Tesla Board members and their families. They contend that Musk used his “his control over the corporate machinery to, among other things, orchestrate Board approval of the Acquisition.”


Tesla’s legal team moved to dismiss the complaint under the Corwin standard, a 2015 Delaware Supreme Court decision holding that “a shareholder vote approving a transaction could effectively free a board from liability claims when the transaction did not involve a controlling shareholder.” Tesla’s counsel contends that an “overwhelming” majority of shareholders voted to approve the deal. Furthermore, Musk, who owned 22.1% of Tesla stock and 21.9% of SolarCity stock at the time of the acquisition, was not a controlling shareholder.


However, under the Kahn standard, courts determine whether a stockholder is a controlling stockholder if they either (1) own more than 50% of shares or (2) own less than 50% but exercise sufficient influence over the corporation to be deemed a “controlling stockholder.” Ultimately, the court held that although Musk owned less than 50% of the company, “Musk’s voting influence, his domination of the Board during the process leading up to the Acquisition against the backdrop of his extraordinary influence within the Company generally, the Board level conflicts that diminished the Board’s resistance to Musk’s influence, and the Company’s and Musk’s own acknowledgements of his outsized influence” all supported Plaintiff’s “reasonably conceivable” contention that Musk was a controlling stockholder.

A Tesla spokesperson expressed disapproval of the ruling and said “it’s important to emphasize that this was a motion to dismiss in which the court was required to assume as true all of the allegations that are made in the complaint.”

Did Tesla Breach its Fiduciary Duty to Shareholders in SolarCity Acquisition (PDF)

GM Korea: Dispute with Temporary Workers Adds to Woes

In early February, GM Korea had announced that it would shut down one of its four plants in South Korea and incur an US $850 million impairment charge as part of its restructuring plans in Asia. The company has been making losses in all Asian countries except China. In May 2017, the company had announced that it would exit the Indian automobile market, one of the fastest growing car markets in the world, as it could not consolidate its position due to stiff competition from Indian and other international manufacturers. However, the company said that it would maintain some of its plants in India to export cars to other countries.


On February 13, a court ruled in favor of 45 temporary workers of GM Korea, ordering GM to recognize them as full-time employees. GM had fired over 600 employees since last December, via a mobile phone message and without any severance package, citing high labor costs and low output as the primary reasons. GM Korea has appealed against the verdict of the court. Having lost his temporary job as a mechanist twice in the past eight years, Shin Hyun-chang is one of the many workers who wishes to be reinstated. “I asked myself ‘why is my life so gloomy? Nothing is going right,’” Shin told Reuters at a protest tent set up outside the Bupyeong GM factories in the suburbs of Seoul. “I moved one step closer to achieving my goal of becoming a regular worker, but the jobs that can help me get there may disappear soon,” he stated.


GM sells Chevrolet and Cadillac cars in Korea. More than half the vehicles produced in South Korea are exported. The company employs over 16,000 people. This announcement by GM comes at a tough time for South Korean President Moon Jae-in, who had promised to create more jobs and provide job security as part of his new economic policy.


As per the latest analyst reports, GM Korea’s production is expected to fall by a quarter to just over 42 percent, thereby, further affecting the temporary, as well as, full-time employees of the company. With a slump expected in production, the company is somewhat entering a downward spiral as low production means the company will not be selling or exporting as many cars as its potential, which in turn will cause worse conditions for the company in South Korea. GM has also said that it will have no choice but to file for bankruptcy if its unions do not agree to cut labor costs. What happens to the plight of the temporary workers, and GM Korea itself, remains to be seen, but what is sure is that GM really needs a Plan B to restructure its business in Asia amidst reports of fall in production and sales.

GM Korea- Dispute with Temporary Workers Adds to Woes (PDF)

Trump Argument Absent from Brief Filed by AT&T and Time Warner

When the Department of Justice filed its lawsuit against the $85 billion AT&T and Time Warner merger, both companies claimed that the government was “selectively enforcing” an antitrust law. This argument stemmed from President Trump’s vocal animosity towards CNN, a subsidiary of Time Warner. This political background inspired AT&T to request phone logs and emails between the White House and Justice Department. Judge Richard J. Leon, overseeing the trial in the District Court for the District of Columbia, denied the request and AT&T has since dropped the political argument from its brief.


On the same day that both sides laid out their arguments for trial, a group organized by the Protect Democracy Project filed an amicus brief asking Judge Leon to reconsider allowing discovery regarding White House interference. Protect Democracy is a bipartisan network of former White House lawyers whom have teamed-up to investigated the  “potential erosion of democratic norms under Trump.”  The organization believes Trump’s statements in the 2016 campaign indicate his intention to block the deal in violation of the Constitution.


At least eleven former U.S. officials participated in filing the amicus brief, some former DOJ officials whom are also contributors on CNN. Included in this group are former U.S. attorney from the Southern District of New York, Preet Bharara, and onetime White House counsel to President Nixon John Dean. President Trump fired Bharara in the early months of his administration and Bharara remains a vocal critic of the President. John Dean was a prominent figure in Watergate and also a vocal critic of Trump.


Absent political rhetoric, the trial is now focused on classic antitrust issues, including how the merger will raise prices for consumers and effect competition. Time Warner and AT&T insist the merger is an attempt to compete with online streaming services such as Netflix and Amazon Prime and reject the argument that it will hurt consumers.


While a merger of a TV-program producer and TV-program distributor would create a corporate behemoth, AT&T argues they are still an underdog to Google and Facebook post-acquisition. Trial started March 19th and it remains to be seen whether the antitrust showdown will open the door for further telecom and media mergers or point to a new era of scrutiny towards an already wavering industry.

Trump Argument Absent from Brief Filed by AT&T and Time Warner (PDF)

Battle of the Dating Apps-Tinder Sues Bumble in Federal Court

Tinder, the app that revolutionized online dating, is going against its biggest rival in a new lawsuit filed on March 16, 2018.


Tinder’s parent company, Match Group, LLC (Match), is suing competitor app Bumble in Texas district court for patent infringement and stealing trade secrets. Yet this may be more than just your average patent lawsuit—some posit that it is the latest unconventional move by Match in an ongoing effort to acquire Bumble.


Match, which holds an impressive portfolio of several major dating services and over 23 million registered users, first made an offer to acquire Bumble in August 2017 for $450 million. Bumble turned down the offer amid reports that its actual valuation was closer to $1 billion. However, Recode recently reported that Match is still interested in acquiring Bumble, signaling that this lawsuit may really be a hostile bargaining chip in attempts to force Bumble to agree to the sale.


Moreover, a complicated history exists between the two dating apps. Bumble founder Whitney Wolfe Herd previously co-founded Tinder before suing the company in June 2014 for sexual harassment. In her suit, Herd alleged that her ex-boss and then-CMO at Tinder, Justin Mateen, robbed her of her co-founder title because he said that having a young female co-founder would “make the company seem like a joke.” Though the suit was eventually settled out of court for approximately $1 million, it did not include a non-compete clause. Herd soon went on to found Bumble, her own competitor dating app, geared primarily toward female users.


Herd’s new app immediately took off with the help of 79% shareowner Andrey Andreev, founder of Badoo, the world’s largest online dating network. Using Andreev’s expertise and Badoo’s infrastructure, Bumble launched in December 2014 with rapid success. The app garnered over 100,000 users in its first month alone. Herd then brought in two former Tinder executives, Sarah Mick and Chris Gulczynski, to design Bumble’s interface and back end.


Though Mick and Gulczynski have since left Bumble to launch their own agency, their involvement is another central issue to Match’s lawsuit. Match claims that the two executives stole “confidential information related to proposed Tinder features,” including the potential “undo” function that allows users to regenerate a match if they accidentally skip it. Match contends that Mick and Gulczynski were under confidentiality agreements, and therefore used trade secrets while knowing (or having reason to know) they were acquired by improper means.

In its 45-page complaint, Match requests an injunction against use of its patent rights, extensive damages, and a jury trial as to all issues. However, it is still unknown whether this suit is truly motivated by patent violations or just leverage for Match to persuade Bumble to accept its buyout offer. Only time will tell if this is the final push Bumble needs to join the Match portfolio.

Battle of the Dating Apps-Tinder Sues Bumble in Federal Court (PDF)

France Gives Companies Three Years to Erase Gender Pay Gap

Earlier this month, French Prime Minister Edouard Philippe unveiled the government’s plan to decrease gender pay gaps in the workforce. If companies fail to erase the pay gap over three years, government inspectors could fine them up to one per cent of the company’s wage bill.


The plan will involve companies with employees numbering greater than fifty people. How does the government intend to detect wage gaps? Companies will have to install software designed to detect for unjustified pay gaps between men and women. The software will be connected directly to the company’s payroll systems.


One source cites France as the second worst country in a survey for gender wage disparities. Data from a World Economic Forum’s Global Gender Gap Report reports that France scores seventeenth best in the world for gender equality and is approximately 76 percent of the way towards achieving gender equality.


President Emmanuel Macron pledged in the beginning of 2018 to increase the government’s efforts in waging the war against gender pay disparities. Marlene Schiappa, France’s highest-ranking women’s right’s official went on record to say that France’s numerous laws on equal pay have not achieved its objectives. Moreover, she suggested that companies should be required to release data on salaries for its employees.


Within the broader European Union, the U.K. reported the largest increase in the gender pay gap in 2015. Today, the EU in general has an average pay gap of 16.3 percent, down from an approximate 25 percent in 1995. In practical terms, this amounts to labor provided by women to be ceased after early November. Experts attribute this pay gap to more males dominating senior management and other higher paid positions.


Some employers were hesitant to provide their approval of the new plan. These employers were in attendance during the press conference and they expressed concerns about the standards for determining whether a pay gap existed. In the coming months, the government will finalize details with employers, unions, and industry-insiders and could become part of a broader labor reform policy plan.

France Gives Companies Three Years to Erase Gender Pay Gap (PDF)