Four surprises in the letter agreement for the purchase and sale of The Washington Post

On my phone over coffee this morning, I've just read an SEC filing pertaining to Jeff Bezos' purchase of The Washington Post.

The filing is a letter agreement. Though it recites that the parties will complete definitive transaction documents within 60 days, the letter expressly provides that it is to be considered a binding agreement.


And the letter has a ton of detail.

Here are four surprises, points which may or may not be reflected in the mass media and mainstream tech press reporting on the deal.

1. The deal is a stock/unit purchase and not an asset sale.

Though the letter contemplates that certain assets will be transferred out of certain Seller subsidiaries, the transaction is structured as a purchase of all the equity interests in operating subsidiaries of The Washington Post Company.

'The Seller agrees to sell, and the Purchaser agrees to purchase, for an aggregate purchase price of $250,000,000 in cash (subject to the adjustments described in Section 2) (the “Purchase Price”), all of the issued and outstanding equity interests (the “Post Subsidiary Securities”) of each of WP Company LLC, Express Publications Company, LLC, El Tiempo Latino, LLC, Robinson Terminal Warehouse, LLC, Greater Washington Publishing, LLC and Post-Newsweek Media, LLC (collectively, the “Post Subsidiaries”), which Post Subsidiaries are each subsidiaries of the Seller and which together conduct the Seller’s Post Business.'

2. The Buyer is assuming pension, benefit, collective bargaining, and a ton of other obligations to Washington Post employees.

Is this point being covered in mainstream reporting? Would be interesting to know an estimated dollar value.

I won't quote all the provisions from the letter agreement on this topic, but here is just one:

'Promptly following the Closing and following the satisfaction of all requirements of applicable law, the Seller shall transfer to a pension plan established by the Purchaser that satisfies the requirements of Section 401(a) of the Code (the “Purchaser Pension Plan”) all liabilities under the Retirement Plan for The Washington Post Companies (the “Post Pension Plan”) for (vested and unvested) benefits earned by employees actively performing services in the Post Business for the Seller or any of its subsidiaries as of the Closing (each such employee, a “Post Employee”) and cash in an amount (or other assets, as mutually agreed by the Seller and the Purchaser, that have a value), as of the Closing, equal to the sum of (I) the sum of (A) the projected benefit obligation (within the meaning of US generally accepted accounting principles) in respect of such liability as of the Closing, determined using the same assumptions used for purposes of calculating the projected benefit obligation in Seller’s financial statements included in the Seller’s Annual Report on Form 10-K for its fiscal year ended December 31, 2012, filed with the SEC, but in no event less than the minimum amount required to be transferred to the Purchaser Pension Plan in compliance with Section 414(l) of the Internal Revenue Code of 1986, as amended (the “Code”), and the treasury regulations issued thereunder and Section 4044 of the Employee Retirement Income Security Act of 1974, as amended (the “414(l) Amount”), plus (B) $50,000,000 (such sum, the “Pension Liability Amount”), plus (or minus) (II) earnings (or losses), if any, on the Pension Liability Amount from the Closing through the date of transfer at a rate equal to the actual rate of return realized on all of the assets of the Post Pension Plan for such period (the “Pension Transfer Amount”).'

3. WaPo Labs takes a license back, with handcuffs, for "Social Reader."

Is this provision, in a nutshell, indicative of a general lack of vision within the legacy newspaper publishing business as a whole? That may be grossly unfair. But can you imagine any viable new media business that agrees to stand still for five years?

'The Purchaser shall, on and after the Closing, license the content of the publications published by the Post Subsidiaries to WaPo Labs for a term of five years from the Closing Date for use in connection with “Social Reader”, a topical-based news aggregator, and, in consideration for such license, the Seller shall pay the Purchaser a fee equal to 10% of the annual profit, if any, of WaPo Labs for such period. The use, promotion, amount and nature of the distribution of content of the Post Business by Social Reader may not substantially depart from the use, promotion, amount and nature of such distribution by Social Reader on or prior to the date of this Letter Agreement. The parties shall memorialize this agreement in a separate license that contains terms (other than the duration, termination without cause rights and price) not less favorable to the Purchaser than those given to other significant content providers. The parties intend that such license would not (1) permit the assignment, resale, syndication or sublicensing of such content nor (2) allow the use or distribution of or access to the content in a manner that adversely affects the Purchaser’s ability to monetize its content in any material respect.'

4. Background IP license is drafted in an interesting way.

Okay, this is more a legal doc drafting point that will appeal to legal drafting geeks like Jeremy Freeland, Brian Rogers, Mark Anderson, Jay Parkhill and me, but I thought this backstop IP license provision was interesting for how it attempted a conceptual exclusion of subscription or SaaS style services.

'To the extent that any intellectual property (including software, technology or patents) owned by the Seller or its subsidiaries (other than WaPo Labs’ Social Reader, which is the subject of Section 6(d)(ii), or any content) is used in (or under development for use in) the operation of the Post Business as currently conducted, but is not owned by the Post Subsidiaries nor transferred to the Purchaser as of the Closing Date (collectively, “Background IP”), then the Seller and its subsidiaries shall grant the Post Subsidiaries a non-exclusive, royalty-free, perpetual, irrevocable license to such Background IP (the “Background License”), including access to any applicable source code and modification rights (it being understood that the Background License shall not include the provision of any information technology services or technical services, or other support or services, all of which will be addressed in the Transition Services Agreement).'

Haven't read attached exhibits of reps and warranties, and want to look again at the noncompete provision, so may post further on this.

Photo: still from All the President's Men.

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