Item 1.01
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Entry into a Material Definitive Agreement
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On December 13, 2017, Twenty-First Century Fox, Inc.
(21CF), The Walt Disney Company (Disney), TWC Merger Enterprises 2 Corp., a Delaware corporation and wholly owned subsidiary of Disney (Merger Sub) and TWC Merger Enterprises 1, LLC, a Delaware limited liability
company and wholly owned subsidiary of Disney (Merger LLC) entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which, subject to the terms and conditions of the Merger Agreement, immediately
following the Distribution (as defined below), Merger Sub will merge with and into 21CF (the Initial Merger), with 21CF to be the surviving corporation (the Surviving Corporation), which will be followed, immediately after
the effective time of the Initial Merger (the Effective Time), by a merger of the Surviving Corporation with and into Merger LLC (the Subsequent Merger, and together with the Initial Merger, the Mergers), with
Merger LLC to be the surviving entity in the Subsequent Merger. As a result of the Initial Merger, 21CF will become a wholly owned subsidiary of Disney. The Board of Directors of each of 21CF and Disney approved the Initial Merger and the Merger
Agreement.
Prior to the consummation of the Initial Merger, 21CF and a newly-formed subsidiary of 21CF (New Fox) will enter into a separation
agreement (the Separation Agreement), pursuant to which 21CF will, among other things, engage in an internal restructuring whereby it will transfer to New Fox a portfolio of 21CFs news, sports and broadcast businesses, including
the Fox News Channel, Fox Business Network, Fox Broadcasting Company, Fox Sports, Fox Television Stations Group, and sports cable networks FS1, FS2, Fox Deportes and Big Ten Network and certain other assets, and New Fox will assume from 21CF certain
liabilities associated with such businesses (the Separation). 21CF will retain all assets and liabilities not transferred to New Fox, including the 20th Century Fox Film and Television studios and certain cable and international
television businesses. Following the Separation and prior to the Mergers, 21CF will distribute all of the issued and outstanding common stock of New Fox to the holders of the outstanding shares of 21CF common stock on a pro rata basis (the
Distribution) pursuant to a recapitalization merger in accordance with the terms of the Separation Agreement and the Merger Agreement. Prior to the Distribution, New Fox will incur indebtedness sufficient to fund a dividend in the amount
of $8.5 billion to be paid to 21CF.
The shares of New Fox common stock will begin trading on the Nasdaq Global Select Market on the closing date.
The Initial Merger will occur at 12:01 a.m. on the day immediately following the closing date.
At the Effective Time of the Initial Merger, subject to
the terms and conditions of the Merger Agreement, each issued and outstanding share of common stock of 21CF, except as otherwise set forth in the Merger Agreement, will be exchanged automatically for and will thereafter represent only 0.2745 shares
of common stock, par value $0.01 per share, of Disney, together with cash in lieu of fractional shares of Disney common stock, without interest, upon the terms and conditions of the Merger Agreement. The per share consideration is subject to
adjustment for certain tax liabilities arising from the Distribution and other transactions contemplated by the Merger Agreement.
The initial exchange
ratio of 0.2745 Disney shares for each 21CF share was set based on an estimate of such tax liabilities, and will be adjusted immediately prior to closing of the acquisition based on an updated estimate of such tax liabilities. Such adjustment could
increase or decrease the exchange ratio, depending upon whether the final estimate is lower or higher, respectively, than the initial estimate. However, if the final estimate of the tax liabilities is lower than the initial estimate, the first
$2 billion of that adjustment will instead be made by net reduction in the amount of the cash dividend to 21CF from New Fox.
In connection with the
transactions contemplated by the Merger Agreement, certain additional agreements will be entered into including, among others, a Tax Matters Agreement (as defined in the Merger Agreement), which will govern Disneys, New Foxs and
21CFs respective rights, responsibilities and obligations with respect to taxes. 21CF and/or Disney will also enter into certain commercial arrangements with New Fox prior to the consummation of the Initial Merger.
Representations, Warranties and Covenants
The Merger
Agreement contains customary representations and warranties of 21CF and Disney relating to their respective businesses and public filings, in each case generally subject to a materiality qualifier. Additionally, the Merger Agreement provides for
customary
pre-closing
covenants of 21CF, including covenants relating to
conducting its business in the ordinary course consistent with past practice and refraining from taking certain actions without Disney consent. The Merger Agreement also provides for covenants of
Disney, including covenants to refrain from taking certain actions without 21CFs consent.
Regulatory Efforts
The parties have agreed to use their respective reasonable best efforts to do all things necessary, proper or advisable to consummate the Transactions,
including making filings with and seeking approvals from certain governmental entities under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act) and other regulatory laws. In furtherance thereof, Disney has
agreed to accept certain restrictions on certain of its and 21CFs assets if and to the extent necessary to obtain the Required Governmental Consents (as defined in the Merger Agreement).
Disney will pay 21CF $2.5 billion (the Disney Regulatory Termination Fee) if the merger is not consummated under certain circumstances
relating to the failure to obtain approvals, or there is a final,
non-appealable
order preventing the transaction, in each case, relating to antitrust laws, communications laws or foreign regulatory laws.
No Solicitation; Change in Recommendation; Fiduciary Out
Prior to the adoption of the Merger Agreement by 21CFs stockholders, 21CFs board of directors may (1) withhold, withdraw, qualify or modify
its recommendation that 21CFs stockholders adopt the Merger Agreement or approve, recommend or otherwise declare advisable any Company Superior Proposal (as defined in the Merger Agreement) or (2) terminate the Merger Agreement and
concurrently enter into an Alternative Company Acquisition Agreement (as defined in the Merger Agreement) providing for a Company Superior Proposal that did not result from a material breach of the Merger Agreement. In connection with any such
action, 21CF must comply with notice and other specified conditions, including giving Disney the opportunity to propose revisions to the terms of the transaction contemplated by the Merger Agreement during a match right period, and the payment of
the 21CF Termination Fee (as defined below) prior to or concurrently with such termination.
Prior to the approval of the stock issuance by Disneys
stockholders, Disneys Board of Directors may (1) withhold, withdraw, qualify or modify its recommendation that Disney stockholders approve the stock issuance or approve, recommend or otherwise declare advisable any Parent Superior
Proposal (as defined in the Merger Agreement) or (2) terminate the Merger Agreement and concurrently enter into an Alternative Parent Acquisition Agreement (as defined in the Merger Agreement) providing for a Parent Superior Proposal that did
not result from a material breach of the Merger Agreement. In connection with any such action, Disney must comply with notice and other specified conditions, including giving 21CF the opportunity to propose revisions to the terms of the transaction
contemplated by the Merger Agreement during a match right period, and the payment of the Disney Termination Fee (as defined below) prior to or concurrently with such termination.
Conditions
Consummation of the merger is subject to
various conditions, including, among others, (i) customary conditions relating to the adoption of the Merger Agreement by the requisite vote of 21CFs stockholders and the approval of the stock issuance by the requisite vote of Disney
stockholders, (ii) the consummation of the Separation and Distribution, (iii) the receipt of legal opinions and rulings with respect to the treatment of the transaction under U.S. and Australian tax laws, including a legal opinion on the
tax-free
treatment of the transaction to 21CFs stockholders (iv) the expiration of the applicable waiting period under the HSR Act, (v) if required, the receipt of any necessary consents from the
Federal Communications Commission and (vi) certain other governmental consents. The obligation of each party to consummate the Mergers is also conditioned upon the other partys representations and warranties being true and correct
(subject to certain materiality exceptions) and the other party having performed in all material respects its obligations under the Merger Agreement.
Termination
The Merger Agreement also provides for certain mutual termination rights of Disney and 21CF, including the right of either party to terminate the Merger
Agreement if the merger is not consummated by December 13, 2018 (as may be extended under certain circumstances relating to governmental approvals and orders, the Termination Date). Either party may also terminate the Merger
Agreement if the 21CF stockholder approval has not been obtained at a duly convened meeting of 21CF stockholders, Disney stockholder approval has not been obtained at a duly convened meeting of Disney stockholders or an order permanently
restraining, enjoining, or otherwise prohibiting consummation of the merger becomes final and
non-appealable.
In addition, Disney may terminate the Merger Agreement if the 21CF Board of Directors changes its
recommendation of the merger prior to the 21CF stockholder approval having been obtained and 21CF may terminate the Merger Agreement if the Disney Board of Directors changes its recommendation of the merger prior to Disney stockholder approval
having been obtained.
If the Merger Agreement is terminated (i) by Disney because the 21CF Board of Directors changed its recommendation with
respect to the Transactions prior to obtaining the adoption of the Merger Agreement by 21CFs stockholders, (ii) by Disney or 21CF if the 21CF Board of Directors changed such recommendation and 21CF stockholders voted against adopting the
Merger Agreement or (iii) by 21CF in order to enter into an Alternative Company Acquisition Agreement with respect to a Company Superior Proposal (in each case, as defined in the Merger Agreement) that did not result from a material breach of
the Merger Agreement, then 21CF must pay to Disney a fee equal to $1,525,000,000 (the 21CF Termination Fee).
Further, if the Merger Agreement
is terminated (i) by Disney or 21CF if the Merger Agreement is not consummated by the Termination Date (if at the time of such termination certain conditions are satisfied) or if the 21CF stockholder approval has not been obtained at a duly
convened meeting of 21CF stockholders or (ii) by Disney due to an uncured or incurable material breach by 21CF, and prior to such termination but after the date of the Merger Agreement a bona fide acquisition proposal shall have been made to
21CF or any of its subsidiaries (publicly or, in the case of termination due to a material breach by 21CF, publicly or privately) or shall have been made directly to 21CFs stockholders generally or any person or entity shall have publicly
announced an intention (whether or not conditional) to make a bona fide acquisition proposal with respect to 21CF, and within 12 months after the date of a termination 21CF consummates certain acquisition proposals or enters into an agreement
contemplating certain acquisition proposals, then 21CF shall be obligated to pay the 21CF Termination Fee concurrently with such entry or consummation.
If the Merger Agreement is terminated (i) by 21CF because the Disney Board of Directors changed its recommendation with respect to the Transactions prior
to obtaining the approval of the stock issuance by Disneys stockholders, (ii) by 21CF or Disney if the Disney Board of Directors changed such recommendation and Disney stockholders voted against approving the stock issuance or
(iii) by Disney in order to enter into an Alternative Parent Acquisition Agreement with respect to a Parent Superior Proposal (in each case, as defined in the Merger Agreement) that did not result from a material breach of the Merger Agreement,
then Disney must pay to 21CF a fee equal to $1,525,000,000 (the Disney Termination Fee).
If the Merger Agreement is terminated (i) by
Disney or 21CF if the Merger Agreement is not consummated by the Termination Date (if at the time of such termination certain conditions are satisfied) or if Disney stockholder approval has not been obtained at a duly convened meeting of Disney
stockholders or (ii) by 21CF due to an uncured or incurable material breach by Disney, and prior to such termination but after the date of the Merger Agreement a bona fide acquisition proposal shall have been made to Disney or any of its
subsidiaries (publicly or, in the case of termination due to a material breach by Disney, publicly or privately) or shall have been made directly to Disneys stockholders generally or any person or entity shall have publicly announced an
intention (whether or not conditional) to make a bona fide acquisition proposal with respect to Disney, and within 12 months after the date of a termination Disney consummates certain acquisition proposals or enters into an agreement contemplating
certain acquisition proposals, then Disney shall be obligated to pay the Disney Termination Fee concurrently with such entry or consummation.
Treatment of Equity Awards
At the time of the
Distribution, all outstanding 21CF equity awards will be converted and adjusted in accordance with the Separation Principles. The Separation Principles provide that (i) 21CF equity awards scheduled to vest in 2019, as well as 21CF equity awards held
by
non-employee
directors or former employees of 21CF, will be
accelerated and paid out in shares of 21CF Class A common stock, and will be treated in the same way as other holders of outstanding shares of 21CF Class A common stock at the time of
the Initial Merger and (ii) 21CF equity awards scheduled to vest in 2020 and subsequent years (A) will convert into equity awards of New Fox for employees who are employed by New Fox and (B) will remain equity awards of 21CF for employees
who are not employed by New Fox, and, in each case, be adjusted to account for the Distribution. In addition, under the terms of the Merger Agreement, and as further described in Item 5.02 of this Form
8-K,
21CF may make a special grant of restricted stock units to certain senior executives of 21CF (the Retention RSU Grant). At the time of the Distribution, all awards outstanding under the Retention RSU Grant will be converted into both
21CF restricted stock units and New Fox restricted stock units.
Following the Distribution-related adjustment and at the time the Initial Merger is
effective, each outstanding 21CF Performance Stock Unit (PSU) will be converted into an award of Disney restricted stock units subject to generally the same terms and conditions as were applicable to such 21CF PSU immediately prior to
the time the Initial Merger is effective (except that such Disney restricted stock units will (i) be subject only to service based vesting conditions and no longer subject to achievement of applicable performance goals and (ii) provide for
settlement in either Disney common stock or cash).
Following the Distribution-related adjustment and at the time the Initial Merger is effective, each
outstanding 21CF Restricted Stock Unit will be converted into Disney restricted stock units subject to generally the same terms and conditions as were applicable to such 21CF Restricted Stock Unit immediately prior to the Initial Merger.
The foregoing summary of the Merger Agreement is qualified in its entirety by the full text of the Merger Agreement, which is attached hereto as Exhibit 2.1
and is incorporated by reference herein.
The Merger Agreement has been included to provide investors with information regarding its terms. It is not
intended to provide any other factual information about Disney, 21CF or their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement
and as of specific dates, were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of
allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to
investors. Investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the
parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may
not be fully reflected in Disneys or 21CFs public disclosures.
Voting Agreement
On December 13, 2017, concurrently with the execution of the Merger Agreement, Disney entered into a voting agreement with Murdoch Family Trust and Cruden
Financial Services LLC, on behalf of itself and as trustee of Murdoch Family Trust (collectively, the Stockholders). Shares of 21CF common stock beneficially owned by the Stockholders subject to the Voting Agreement (the Voting
Agreement Shares) constituted approximately 16.90% of the total issued and outstanding shares of 21CF common stock as of December 11, 2017. Pursuant to the Voting Agreement, the Stockholders have agreed to vote, or cause the holder of
record to vote, in favor of (i) adoption of the Merger Agreement and the transactions contemplated thereby and (ii) any proposal to adjourn or postpone a meeting of shareholders to a later date if there are not sufficient votes to adopt
the Merger Agreement.
Further, the Stockholders have agreed to vote against (i) approval of any proposal made in opposition to adoption of the
Merger Agreement or the merger or the other transactions contemplated by the Merger Agreement and (ii) any action, proposal or agreement that would reasonably be expected to result in a breach of any representation, warranty, covenant or
agreement of Disney under the Merger Agreement or that would reasonably be expected to prevent or materially delay or adversely affect the consummation of the Transactions contemplated by the Merger Agreement. The Stockholders have also agreed,
subject to certain exceptions, not to facilitate any effort or attempt by another entity to make an acquisition proposal for 21CF, including by refraining from discussing or providing
information to any person in connection with such a proposal. In the Voting Agreement, the Stockholders also agreed, subject to certain exceptions, not to, among other things, sell, pledge,
encumber, exchange, assign, grant an option with respect to, transfer, tender or otherwise dispose of, or enter into any agreement, arrangement or commitment providing for the transfer of, any Voting Agreement Shares.
The Voting Agreement will terminate upon the earliest of (i) the termination of the Merger Agreement pursuant to Article VII thereof, (ii) the time
at which the merger of the Corporate Sub into 21CF has become effective and (iii) such date and time as the Merger Agreement shall have been amended in a manner that reduces the amount of merger consideration or is material and adverse to any
of the Stockholders without the Stockholders prior written consent. In addition, certain voting obligations under the Voting Agreement will no longer be in effect upon the occurrence of a Company Change in Recommendation.