Time Warner Would Pay AT&T $1.73 Billion Breakup Fee if Merger Is Pulled

Time Warner CEO Jeff Bewkes eligible for retention-incentive stock grants in February 2017

Time Warner
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Time Warner has agreed to pay $1.725 billion to AT&T if the media company backs out of the massive deal to be acquired by the telecom company.

Under the terms of AT&T’s $85.4 billion bid for Time Warner, the fee would be payable if Time Warner’s board has a change of heart prior to stockholder approval or if Time Warner receives a higher offer, according to SEC filings Monday.

AT&T reserves the right to terminate the Time Warner deal if the telco’s board changes its mind prior to stockholder approval.

Meanwhile, AT&T will pay Time Warner $500 million “in respect of its time and expenses” if the merger is not consummated under certain conditions, including in the event the deal is blocked by regulators, per the filing. The deal was announced by the companies Saturday night, and is expected to face close scrutiny by U.S. officials.

Time Warner chairman-CEO Jeff Bewkes — who said he will exit the company after the AT&T acquisition following a transition period — did not receive any retention-incentive consideration related to the AT&T deal, according to TW’s 8-K filing with the SEC. However, he is eligible for special-retention restricted stock units in February 2017 worth twice the target value of his annual long-term incentive compensation.

Time Warner detailed retention agreements with four key execs to extend their contracts through Dec. 31, 2019: CFO Howard Averill, general counsel Paul Cappuccio, Olaf Olafsson, EVP of international and corporate strategy; and Gary Ginsberg, EVP corporate marketing and communications. Those executives will receive cash and stock incentives to remain with Time Warner post-AT&T merger. Averill’s package comprises $9.2 million in restricted stock and $1.75 million cash; Capuccio gets $6.8 million in stock and $1.575 million cash; Olafsson gets $2.8 million in stock at $693,750 cash; and Ginsberg receives $2.5 million in stock and $900,000 cash.

In addition, AT&T disclosed that it entered into a $40 billion loan credit agreement with JPMorgan Chase on Oct. 22, solely to fund the cash portion of the Time Warner acquisition (or to refinance of debt of Time Warner and its subsidiaries).

Either AT&T or Time Warner may terminate the pact if it is not closed by Oct. 22, 2017, subject to extension in certain cases until no later than April 22, 2018.