The AT&T/Time Warner merger was approved last week by Federal District Judge Leon, who eviscerated the administration’s argument in all respects. The green-lighting of the AT&T merger immediately set off more M&A activity in the form of Comcast’s $65 billion all-cash bid for the assets of 21st Century Fox. 21st Century Fox had previously agreed to be acquired by Walt Disney for approximately $52.4 billion in a cash and stock deal. This is no doubt the opening salvo in new round of merger mania.
Merger-mania raises multiple compliance issues to consider. From the FCPA perspective alone, there should be robust pre-acquisition due diligence to create a roadmap for the post-acquisition integration. Yet, in many instances, the anti-corruption compliance aspect of the integration may be one of the most straightforward. It is a matter of assessing the compliance program the acquired company has in place and then remediating any gaps with the acquiring company’s compliance program, training new employees, and performing a full forensic audit from the anti-corruption compliance perspective.
But there is another integration which is perhaps even more important: the cultural integration. Time Warner was a direct recipient of this lesson when it was acquired by AOL back in 2000 for $165 billion, at that point largest merger in the entertainment industry. It was a complete, total, and utter disaster for the entertainment giant, which had to slowly divest itself of its prized subsidiaries to pay for this misstep until it spun off AOL itself in 2009. The reason was largely culture. AOL was a startup unicorn (before the term existed), which used phantom profits to buy a real company and their cultures never meshed.
Now telecom bohemoth AT&T is purchasing a free-wheeling entertainment company in one of the most heavily regulated spaces. Do you think for one minute the phone executives at AT&T fly business class? Now ask that same question about the Hollywood moguls employed at Time Warner. Do you think the same approach to compliance holds true at the regulated AT&T as it does at a multimedia company? Not likely. With the recent Justice Department emphasis on corporate culture, it will be interesting to see what this season of merger mania means to compliance and culture.