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INTERNATIONAL CABLETEL INC. v. LE GROUPE VIDEOTRON

September 19, 1997

INTERNATIONAL CABLETEL INCORPORATED, Plaintiff, against LE GROUPE VIDEOTRON LTEE, CABLE ROAD INVESTMENTS LIMITED, Defendants.


The opinion of the court was delivered by: SOTOMAYOR

 BACKGROUND

 In early 1996, CRIL, a wholly owned subsidiary of Le Groupe Videotron Ltee ("GVL"), undertook to sell its majority interest in Videotron, a British cable and telecommunications services provider. CRIL hoped that it could secure a deal with BCM, already the owner of a substantial minority interest in Videotron. BCM was interested in purchasing Videotron, but because it viewed itself as the only viable purchaser, BCM was unwilling to meet CRIL's initial demands. BCM therefore declined to negotiate with CRIL, expecting that the asking price for Videotron would drop when no other prospective purchasers emerged. Unable to reach a satisfactory agreement with BCM, CRIL placed Videotron on the open market.

 Encouraged by reports indicating that negotiations had broken down between CRIL and BCM, CableTel's managing director, in March 1996, contacted representatives of CRIL and expressed an interest in purchasing Videotron. Wary of being used as a "stalking horse" to lure BCM back into negotiations, however, CableTel sought assurances from CRIL that it would negotiate exclusively with CableTel for the purchase of Videotron. CRIL provided these assurances, repeatedly, and CableTel therefore entered into initial discussions with CRIL for the purchase of Videotron.

 In August 1996, CableTel and CRIL representatives met in London to discuss the terms of a preliminary purchase agreement. CableTel, however, was unwilling to negotiate in earnest without first securing a letter of intent with a binding exclusivity provision. CRIL expressed its willingness to enter into such an agreement, and -- during the days that the agreement was being finalized -- CRIL reiterated to CableTel that it had no intentions of negotiating with any other parties, BCM in particular. (Complaint P 21.) CRIL representatives explained that they had been "unhappy" with BCM's tactics, and that they were "tired of dealing with them." (Comp. P 22.)

 On August 9, 1996, the parties executed the "Heads of Agreement" (the "Heads"), which outlined the nonbinding provisions of a proposed deal, and which included the following provision pursuant to which CRIL agreed to negotiate exclusively with CableTel for a specified time:

 
CRIL acknowledges that [CableTel] will devote substantial time and incur substantial out-of-pocket expenses in connection with completing its business, financial and legal due diligence investigation, drafting and negotiating definitive documentation and financing necessary to complete the transactions described above ("the Transaction") . . . . As an inducement for [CableTel] to proceed . . . CRIL agrees that for . . . the "Exclusive Period" . . . CRIL, its affiliates and their respective officers, directors and representatives . . . will not . . . initiate, negotiate or hold any understanding or agreement with, any party other than [CableTel] . . . .

 (Renault Aff. Ex. B.) This exclusivity provision, initially binding through September 12, 1996, was ultimately extended to October 16, 1996.

 To ensure CRIL's compliance with the exclusivity provision, the Heads included a liquidated damages provision pursuant to which CRIL would be liable to CableTel in the amount of $ 10,000,000 in the event that CRIL were to sell its majority interest in Videotron at any time during or within ninety days after the conclusion of the exclusivity period. This provision was included at Paragraph 9 of the Heads:

 
If a Third Party Acquisition . . . shall occur either during the Exclusive Period (or any extension thereof) or . . . before the expiry of 90 days from the later of termination of negotiations and the expiry of the Exclusive Period (as so extended), CRIL shall pay to [CableTel] within five working days of completion of the Third Party Acquisition . . . a fee of US$ 10,000,000. The receipt of such fee shall remove any entitlement to and satisfy any claims [CableTel] may have (known and unknown) arising out of the subject matter of these Heads arising at or prior to the time of such payment; accordingly [CableTel] shall have no further remedy for breach of Paragraph 7.

 (Renault Aff. Ex. B (emphasis added).)

 According to the Complaint, CRIL never had any intention of honoring the Heads, but -- exactly as CableTel had feared -- CRIL was merely using CableTel as a "stalking horse." That is, CRIL never planned or even hoped to sell Videotron to CableTel, but negotiated with CableTel merely in the hopes of "eventually" luring BCM back into negotiations and on more favorable terms than before. (Comp.P 25.) The scheme succeeded.

 Despite their assurances, and despite the exclusivity provision of the Heads, CRIL negotiated with BCM throughout much of the time that CableTel was working to achieve its own deal with CRIL. Indeed, in order to maintain its leverage over BCM, CRIL negotiated with CableTel virtually up until the moment that it announced that a deal had been reached with BCM. The purchase agreement between CRIL and BCM was executed on October 16, 1996, only days after CableTel officials had arrived in London for a final round of negotiations. CableTel realized that BCM had breached the exclusivity provision of the ...


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