Blockbuster's $1 Billion Bid on Circuit City

by Marta Kowalczyk April 25 2008, 07:54
I. Introduction

On April 14, 2008 Blockbuster Inc. announced publicly its offer to purchase electronic retailer Circuit City Inc. Blockbuster has been in talks with Circuit City for months regarding an acquisition. [1] On February 17, 2008 Blockbuster sent a letter to Circuit City Chairman Philip Schoonover offering over $1 billion for the transaction. [2] This is equivalent to $6 to $8 a share in cash for the company. [3]Blockbuster also stated that they were willing to pursue alternative deal structures to enable Circuit City shareholders to receive stock. [4] Circuit City is hesitant about the deal and has yet to reveal to Blockbuster its long-term corporate plans and performance data. [5] This paper will evaluate the benefits and negatives of the acquisition as well as discuss whether this merger should occur. [More]

Breach of Fiduciary Duty Suits Arising Out of Yahoo’s Rejection of Microsoft’s Offer

by Philip D. Amoa April 19 2008, 11:48
Last month, Yahoo!, the California-based Internet service provider, rejected a “generous” offer by U.S. software giant, Microsoft. [1] Microsoft’s 62 percent premium above Yahoo!’s share was aimed at maximizing synergies that existed between both companies. Microsoft hoped to gain a greater market advantage in the internet search industry while enjoying a majority share of the projected $80 billion market by year 2010. [2] Following Yahoo!’s rejection, some disgruntled Yahoo shareholders have sought legal remedies to voice their dissatisfaction with Yahoo’s decision. [3] In light of three previously decided cases, Emerging, Van Gorkom, and Disney, this article will attempt to provide a legal analysis on the breach of fiduciary duty suits against Yahoo!.


M&A Trend In 2008

by Philip D. Amoa April 15 2008, 10:17
In the first financial quarter of 2008, a steady trend in M&A activity is patent. The weak dollar, the economic slowdown, banks’ lack of liquidity, or the motivation to add shareholder value are all viable reasons for the trend in M&A activity. Some corporations, in 2007, projected M&A to remain strong until, “private-equity buyers pushed up target prices too high and economic growth slow[ed].” [1] A New York investment bank for media and information industries tracked buyouts in the media world for the first quarter of 2008 and reported 202 transactions that had a total value of $13.4 billion. [2] This figure is in no way a cap on the total dollar value of all M&A activity in the first quarter since the $13.4 billion represents only M&A activity in the media and information industries.


Will the XM-Sirius Merger Pass FCC Regulations?

by Marta Kowalczyk April 10 2008, 08:00
I. Introduction

On February 19, 2007 satellite radio rivals Sirius Satellite Radio and XM Satellite Radio announced their intention to merge. [1] Both companies have experienced billions of dollars in losses. [2] Their net debt is approximately $1.6 billion. [3] According to Wall Street equity analysts, this merger will help the financial future of both companies by cutting their costs and resulting in a savings of over $3 billion . [4] However, the two companies have major hurdles to overcome. One hurdle was antitrust concerns about the merger by the Department of Justice. [5] On March 24, 2008 the United States Department of Justice closed its investigation and approved the XM-Sirius merger, finding that the merger would not harm consumers or competition. [6] Still, the XM-Sirius merger has one more obstacle in its path - the approval of the Federal Communications Commission (FCC). [7] In order for XM and Sirius to receive approval of their merger from the FCC, under the License Ownership Restrictions the FCC must find that the merger is in the "public interest." [8] In determining whether or not the merger is in the public's interest, this paper will analyze the merger's effect on consumers and competition as well as evaluate if the FCC will or will not approve the XM-Sirius merger. [More]

Creating Stability in the Airline Industry through Merger

by Marta Kowalczyk April 6 2008, 08:05
I. Introduction

In the mid-1980s the airline industry experienced merger mania. Delta bought up Western. [1] Pan Am merged with National [2]. Texas International and New York Air merged with Continental and People Express. [3] Now this trend has reemerged through the possible merger of Delta, the third-largest U.S. airline in terms of passenger traffic, with Northwest, the fifth-largest carrier, to create the largest passenger airline in the world. [4] Executives of both airlines have agreed on most of the basics of a merger, but talks have stalled over the issue of integrating workers. [5] As talks have stalled, the question remains whether Delta and Northwest should merge. This article will discuss the implications of the Delta-Northwest merger. First, it will discuss the antitrust considerations. Second, it will examine the likely impact of the merger on employers, shareholders, and customers. Finally, this article will conclude on whether or not the Delta-Northwest merger will be beneficial for the two companies and the airline industry. [More]

A New Height For Internet Search?: The Micro-Hoo Deal

by Philip D. Amoa February 13 2008, 17:25
Microsoft’s Offer

A $44 billion bid by Microsoft (“MSFT”) to acquire Yahoo (“YHOO”) may be an indicator of just how desperate Microsoft is to dominate the internet search market. [1] This bid may be reflective of Google’s threat to the world’s largest software maker. [2] With the offer on the table, analysts can only speculate about Yahoo’s response to the $44 billion possible merger. [More]

Analyzing the Beer Market

by Patrick Schuette November 1 2007, 01:23
I. Introduction

On Tuesday, October 9th, London-based SABMiller and Denver-based Molson Coors announced they would be combining their brewing operations in the United States, creating a brewer called MillerCoors.[1] This move is the latest in a growing consolidation trend among the brewers of the world’s beer. In 2002, South African Breweries purchased Miller Brewing from Philip Morris, forming SABMiller.[2] Molson Coors was formed in 2004 when Molson, a Canadian brewer, merged with Adolph Coors.[3] Earlier this year, Anheuser-Busch announced that it would be importing Czechvar Beer, brewed by the Czech state-run brewery Budejovicky Budvar NP[4] into the United States despite a century-long legal battle over the Budweiser name[5] Most recently, Scotch & Newcastle, the U.K.’s largest brewer, is receiving numerous takeover bids from other major brewers.[6] [More]

Post-Merger: What’s in a Name?

by Jennifer Kolton October 30 2007, 15:29
Amongst the due diligence, negotiations, and deal making in crafting a merger between two companies, one issue that arises is what to name the new company.  A newly merged company’s choice of name may have much to do with how shareholders, customers, and other corporate constituents perceive the newly merged company.As one example of the importance of names, it has been previously estimated that among law firms “about half of the proposed mergers among equal-sized firms, with living, named partners, fail on the issue of firm name alone.”[1]  While this sounds drastic, choosing a name for a newly-merged company seems to have at least some bearing on the future business of the company.In some instances, changing names after a corporate transaction can be a positive signal to corporate workers and consumers.  After DaimlerChrysler sold its majority interest in Chrysler, Chrysler celebrated its return to its pre-merger name and its return to American ownership.[2]  It was expected that the name change and reintroduction of Chrysler’s pre-merger logo would be a “welcome change for the company and for the reputation of Chrysler’s name.”[3]  Yet, not all corporate transactions and resulting name changes have resulted in such a welcome change.In the same transaction that split Chrysler from DaimlerChrysler, the remaining Daimler contingent faced shareholder challenges to bring the “Benz” name back to Daimler.[4]  In the original merger between Daimler-Benz and Chrysler, “Daimler offered to drop the Benz hyphenate if Chrysler agreed to take a back seat in the name DaimlerChrysler.”[5]  With the Chrysler name now severed from Daimler, shareholders rallied to bring “Benz” back to Daimler, stating that “[r]einstating the name of one the company’s founding fathers would ‘constitute a certain degree of compensation for the many years of frustration for the employees, particularly in the traditional Benz plants.’”[6]  Thus, while the Chrysler contingent welcomes a return to American ownership and an identifiable American name, the Daimler shareholders express concern with not returning to the pre-merger name of Daimler-Benz.Deciding on a corporate name after a merger or similar transaction also can prove complicated to properly identify a company’s strongest businesses.  Consider the early 2001 merger of America Online, Inc. and Time Warner Inc.  America Online and Time Warner merged “the world’s most highly respected and valuable entertainment, news and Internet brands,” labeling the new company “AOL Time Warner Inc.”[7]  AOL Time Warner was expected to “lead the convergence of the media, entertainment, communications and Internet industries and provide wide-ranging, innovative benefits for consumers.”[8]  A few years later, the AOL Time Warner Board of Directors voted to rename the company “Time Warner Inc.”[9]  The new name was cited as one that “better reflects the portfolio of [the company’s] valuable businesses and ends any confusion between our corporate name and the America Online brand name.”[10]  Also notable, in the same press release describing the new name, the company describes itself as “the world’s leading media and entertainment company, whose businesses include filmed entertainment, interactive services, television networks, cable systems, publishing and music.”[11]  One might wonder why in the 2001 merger announcement, the internet services are promoted, yet the same services are downplayed if even existent in the 2003 description of the same company operating under a different name.  Some analysts attribute this move to Time Warner backing away from the America Online name and financial losses and to America Online’s need to prove itself to Time Warner in light of the changing internet landscape.[12]  Time Warner’s message in eliminating AOL from its company name could signal a shift away from viewing the internet business as an integral part of the corporation.[13]  It could also signal a shift toward severing AOL from the business of Time Warner, as analysts estimate that “Time Warner could realize more shareholder value if it were split up.”[14]To further complicate the name game, in 2006 Time Warner announced it would retire the “America Online” name and operate as “AOL.”[15]  The mission of America Online was to literally “[get] America online,” and that mission appears long since to have been accomplished.[16]  Thus, reflecting on the pattern of name changes in Time Warner, it appears that internet and entertainment businesses were once equally lucrative, and at some point the internet business was judged not truly indicative of the broader corporate portfolio of businesses and created confusion with the America Online brand name.  Regardless of the changes, it appears that Time Warner changed its name to highlight the value of its businesses over time.In contrast, consider Macy’s (formerly known as Federated Department Stores, Inc.) acquisition of May Company.  As part of the transaction, Macy’s changed the names of several regional department stores formerly operated by May Company.[17]  Depsite a statement that Macy's "carefully research[ed] customer preferences"[18], the name change had the effect of “alienating thousands of customers”[19] who dislike the newly-named store and remain loyal to the previous branded department store.  Unlike Time Warner, who appeared sensitive to customers’ and analysts’ perception of the America Online name and its internet business, Macy’s alienated customers merely by changing the name of its businesses.  While part of the merger process appears to rely on synergy of the merging companies, it seems that the names chosen may have much to do with the way the newly combined company is perceived.Ultimately, the name of a newly merged company is just one of several terms to negotiate in the merger process.  However, companies should take note that the names they choose may have a significant impact on corporate and customer image and branding.[1] Mary Ann Altman, Law Firm Mergers, PRAC. LAW INST. Order No. A4-4242 (Oct. 17, 1988).[2] Nick Bunkley, With Sale, Chrysler’s Identity is Simplified, NY TIMES, Aug. 4, 2007, available at[3] Id.[4] Mark Landler, From Now On, It’s Just Plain Daimler, NY TIMES, Oct. 5, 2007, available at[5] Id.[6] Id.[7] Press Release, TimeWarner, America Online and Time Warner Complete Merger to Create AOL Time Warner (Jan. 11, 2001), available at,20812,668364,00.html.[8] Id.[9] Press Release, TimeWarner, AOL Time Warner to Rename Company “Time Warner” (Sept. 18, 2003), available at,20812,670030,00.html.[10] Id.[11] Id.[12] See, e.g, Louise Story, Moving Downtown: AOL Seeks New Image, NY TIMES, Sept. 18, 2007,available at[13] Id. [14] Id.[15] Press Release, TimeWarner, America Online Changes its Name to AOL (Apr. 3, 2006), available at,20812,1179447,00.html.[16] Id.[17] Press Release, Macy's, Inc., Federated Announces Strategic Decisions to Integrate May Company Acquisition; Company to Focus on Building the Macy's and Bloomingdale's Brands While Increasing Profitability (Sept. 20, 2005), available at[18] Id.[19] Michael Barbaro, Macy’s and Hilfiger Strike Exclusive Deal, NY TIMES, Oct. 26, 2007, available at

Why We Should Care About "Meandering Giants"

by Jennifer Kolton April 3 2007, 15:30
Healthcare mergers are topping headlines as what the Economist calls “meandering giants.”[1]  Most recently, CVS Corp. acquired Caremark Rx Inc. in a $26 billion acquisition agreement.[2]  Some wonder whether these mergers will lead to a “meandering giant syndrome,” where companies that grow too much may “stifle innovative culture that smaller companies tend to have,” leading to loss of corporate identity and employee enthusiasm.[3]  In other words, the Economist seems to be questioning whether the merger of major companies in the healthcare industry has a contemplated direction, or whether the pharmaceutical giants are “meandering” towards a possible corporate detriment.  As a proposed answer to the Economist’s question, I suggest that the pharmaceutical giants are lining up as merged entities to take advantage of the economies of scale, rather than meandering aimlessly. The Economist points to a number of factors underlying the merger of pharmaceutical giants.  The research costs of new drugs are a major factor, as “the number of drugs approved has fallen by half in the past seven years as the cost of developing them has doubled.”[4]  Also, “scale helps in developing novel drugs.”[5]  Several smaller, previously independent pharmaceutical firms recently realized this through their mergers into larger firms, and more mergers of this type are likely on the way.[6]  The latest factor, present in the CVS-Caremark merger, involves consolidating pharmacy benefit management (PBM) and drug store chains, resulting in an increased ability to negotiate lower drug prices for consumers.[7] To better explain the CVS-Caremark merger, each company previously occupied a unique niche in the pharmaceutical industry.  Caremark “buys directly from manufacturers and distributes drugs . . . by mail order.”[8]  CVS “operates nearly 5,400 retail stores with pharmacies.”[9]  As a merged entity, CVS and Caremark eliminate a substantial middle step of negotiations and sales between the company buying direct from the manufacturer and the company selling directly to consumers. Considering the Economist factors and the CVS-Caremark merger together, the CVS-Caremark merger sheds some doubt on the Economist’s presentation of pharmaceutical mergers as “meandering.”  If one looks solely to costs and scale, it makes sense that a larger company has more resources to invest in research and development of a variety of new drugs, thereby running the risk of “meandering giants.”  Taking these two factors in isolation, pharmaceutical giants are free to meander all they want, freely acquiring other companies within their industry niche until the giants possess competing medicine cabinets housing the next potential miracle drugs but stifle corporate innovation, identity, and enthusiasm.[10]  Yet, the CVS-Caremark merger takes meandering out the picture by introducing a type of vertical integration that has the potential to change the entire pharmaceutical industry.If Caremark wanted to meander, it had more than ample opportunity to do so.  PBM competitor Express Scripts Inc. also expressed an interest in acquiring Caremark prior to finalization of the CVS-Caremark deal.[11]  A deal between Caremark and Express Scripts would have resulted in a combination two of the top PBMs – or a horizontal integration deal.[12]  Yet, Caremark’s “refusal to permit confirmatory due diligence by Express Scripts”[13] appears to send a clear message that Caremark was not interested in a horizontal integration deal.When asked whether Express Scripts would pursue a vertical integration deal after its horizontal integration bid for Caremark was rejected, Express Scripts’ chief executive commented that he is having “a hard time seeing a vertical model that makes sense.”[14]  Yet, with CVS and Caremark eliminating the middleman between purchasers from drug manufacturers and suppliers to consumers, it is difficult to see why the CVS-Caremark model wouldn’t make sense, especially when one considers the likely benefits to individual and corporate consumers of pharmaceuticals and benefits plans.  Others in the pharmaceutical industry seem to realize these benefits.  Walgreens announced it had “a certain amount of trepidation about the merger” and is building from within to create a drug-benefits business called Walgreen Health Services.[15]  While Express Scripts may still be reeling from rejection of its offer and from the benefits one of its key horizontal competitors may now be able to offer consumers, other pharmaceutical giants are taking note of the deal by increasing their ability to compete with the comprehensive line of services CVS-Caremark will offer.In conclusion, the reason we should care about “meandering giants” is because, contrary to what theEconomist suggests, these pharmaceutical giants are not meandering at all.  Instead, the giants appear to be engaging in carefully calculated moves of vertical integration.  If the giants were meandering, we would expect to see more horizontal integration mergers which combine resources of multiple companies to better cover the increased research and development costs.  However, the CVS-Caremark deal introduces vertical integration, which shows that the giants are not meandering, but engaging in an industry changing merger practice.[1] Health-Care Mergers: Meandering Giants, ECONOMIST, Mar. 24, 2007 at ? (hereinafter “Meandering Giants”).[2] Associated Press, Caremark Deal Complete; Name Changes, CHI. TRIB., Mar. 23, 2007 at 2.[3] Meandering Giants, supra note 1.[4] Id.[5] Id.[6] Id. (noting that “Switzerland’s Serono and Germany’s Schering, Altana and Schwarz were all sold in 2006” and that “Britain’s Astra Zeneca and America’s Wyeth and Bristol-Myers Squibb” may be the next targets for larger, acquiring firms).[7] Id.[8] Louise Escola, Caremark Shareholders Approve $27 Billion CVS Bid, BUS. INS., Mar. 19, 2007, at 4. [9] Id.[10] See supra note 3.[11] CVS/Caremark Complete Merger, INVESTREND, Mar. 23, 2007 (page unavailable).[12] Mary Jo Feldstein, Express Scripts’ Future, ST. LOUIS POST-DISPATCH, Mar. 23, 2007 (page unavailable).[13] Express Scripts Declares Current Offer to Acquire Caremark “Best and Only” Offer without Confirmatory Due Diligence, LIFE SCIENCE WEEKLY, Mar. 27, 2007, at 418.[15] Feldstein, supra note 12.[16] Monee Fields-White, Coming Up Fast on Walgreen’s Trail: CVS Takeover of Caremark is Another Challenge for Company, CRAIN’S CHI. BUS., Mar. 19, 2007, at 4.

Sirius-XM “Merger of Equals” Faces Regulatory Challenge

by Jennifer Kolton February 27 2007, 15:32
SIRIUS Satellite Radio and XM Satellite Radio announced plans for a “tax-free, all-stock merger of equals” in which XM shareholders will receive 4.6 shares of SIRIUS common stock per 1 share of XM stock owned.[1]  The planned merger has raised eyebrows as to whether the Federal Communications Commission (FCC) will approve the combination, particularly as under a current FCC rule SIRIUS and XM are prohibited from acquiring each other’s licenses.[2]  Based on this FCC rule, one has to wonder whether this is termed a “merger of equals,” despite what looks like an acquisition of XM by SIRIUS, to evade harsher FCC scrutiny.I.  Terms of the Merger... of “Equals”?Although termed a “merger of equals,” this transaction appears to fit the model of an acquisition of XM by SIRIUS.[3]  For one, XM shareholders will receive a certain amount of SIRIUS stock in exchange for their XM shares[4].  Second, XM shareholders will receive a 22% premium on that share transaction[5], resembling the price of a control premium in an acquisition.  Third, SIRIUS’s Chief Executive Officer, Mel Karmazin, will lead the combined entity as CEO, but XM’s CEO, Hugh Panero, “will not have an executive role” in the new entity[6].The rationale for the terminology “merger of equals” may have to do with the current FCC satellite radio licensing rule.  In 1997, the FCC granted only two licenses and, as a measure to ensure ongoing competition, “stipulated that one of the holders would ‘not be permitted to acquire control of the other.’”[7].  Thus, the FCC stipulation suggests that the rule would only apply if either SIRIUS acquired XM, or vice-versa, but not if the two companies merged “equally.”II.  FCC ReactionIn reaction to the SIRIUS-XM merger announcement, FCC Chairman Kevin J. Martin responded that to pass regulatory scrutiny the companies “would need to demonstrate that consumers would clearly be better off with both [i] more choice and [ii] affordable prices.”[8]  Whether this is a merger of equals or a disguised acquisition, the FCC will consider these factors in its regulatory review.A.  More ChoiceThere are two possible angles from which one can consider whether a SIRIUS-XM combination will provide consumers with more choice.  The first is to consider whether the combined entity will offer greater programming choices to consumers than two separate entities.  The second is to consider whether the combined entity will offer more choice to consumers in general, taking into account other radio media sources.SIRIUS and XM impliedly advocate for the first angle.  SIRIUS and XM claim that their combination will provide consumers with a “broader selection of content, including a wide range of commercial-free music channels, exclusive and non-exclusive sports coverage, news, talk, and entertainment programming.”[9]The second angle would look to consumer choices in general.  Being that XM and SIRIUS are the only satellite radio providers[10], it seems as though consumers would have less choice with only one satellite radio provider instead of two.  However, the FCC could also look to a broader market of music providers, including “digital broadcast radio providers, wireless music services on mobile phones[,] and portable players such as iPods.”[11]  The problem with this argument, though, is that the broader market of “choice” exists with or without a SIRIUS-XM merger.  In other words, consumers already have the choice to listen to satellite radio or another musical source, regardless of whether there are one or two satellite radio providers.  Thus, whether the proposed merger will offer consumers more choice will turn upon whether SIRIUS and XM can deliver the broader radio content as promised.B.  Affordable PricesSIRIUS and XM describe how the merger will enhance financial performance[12], and one may think that such performance benefits will flow down to consumers.  SIRIUS and XM point to “better manag[ing] its costs through sales and marketing and subscriber acquisition efficiencies, satellite fleet synergies, combined R&D and other benefits from economies of scale.”[13]  However, one must also consider the immense costs currently faced by each company, as well as costs associated with the merger, which may affect consumer prices.  Both SIRIUS and XM currently need “to overcome their debt and depreciation costs.”[14]  In terms of merger costs, currently “XM radio receivers [cannot] receive signals from Sirius, and vice versa.”[15]  Although XM and SIRIUS are expending efforts to develop a receiver which would be compatible with both signals[16], one logically would not expect this development to be cost-free.  Another concern is that the presence of only one company in the market, rather than a pair of competitors, could give the merged entity “more pricing power as the only U.S. satellite radio provider.”[17]  Thus, while a merger may enhance financial performance, it is not clearly evident that the resulting benefits would overcome the costs currently borne by each company individually and the costs incurred to implement the merger.III.  Predicted OutcomeThis is likely to be a difficult challenge for SIRIUS and XM.  The FCC’s concerns about choice and affordable prices indicate standards against which the FCC may modify the rule if it does not see this as a merger of equals.  However, one should not discount the current FCC rule against one satellite radio provider’s acquisition of the other’s license.  In other words, before the FCC even considers choice and affordable prices, it should look to whether the “merger of equals” is really what it purports to be, or whether the combination is a linguistic loophole to the rule against acquiring a competitor’s broadcasting license.  All in all, even if the FCC accepts the proposed transaction as a “merger of equals” rather than as an acquisition of XM by SIRIUS, it is not clear that the transaction would result in more choice and affordable prices for consumers, leading one to question the practicable viability of the transaction.[1] Press Release, SIRIUS Satellite Radio, SIRIUS and XM to Combine in $13 Billion Merger of Equals (Feb. 19, 2007), available at[2] Satellite Radio Deal Puts Focus on Regulators, N.Y. TIMES, Feb. 20, 2007, available at[3] Phil Mintz, The XM-Sirius Deal May Not Fly, BUSINESS WEEK ONLINE, Feb. 20, 2007 (page unavailable on Westlaw).[4] Id.[5] Id.[6] Id.[7] Joseph Menn and David Colker, Satellite Radio Competitors Agree to Merge, L.A. TIMES, Feb. 20, 2007 at Business 1 (emphasis added).[8] Editorial, Radio Daze: XM and Sirius, the Nation’s Two Satellite Radio Providers, Want to Merge.  The FCC Should Let Them, L.A. TIMES, Feb. 20, 2007, at 20 (emphasis added).[9] Press Release, SIRIUS Satellite Radio, supra note 1.[10] Menn and Colker, supra note 7.[11] Id.[12] See Press Release, SIRIUS Satellite Radio, supra note 1.[13] Id.[14] Editorial, supra note 8.[15] Seth Sutel, Satellite Radio Rivals XM and Sirius Agree to Combination, CHICAGO TRIBUNE, Feb. 19, 2007, available at,1,2557495.story.[16] Id.[17] Id.

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