Wilmington, Del. -- Talk about awkward: Last Wednesday, SBC
Communications Inc. sued two of its proposed merger partners -- Ameritech Corp. and
Southern New England Telecommunications Corp. -- over a partnership dispute that began a
It all began when SBC decided to bow out of the Americast
cable venture that it had joined in 1995. In addition to SBC, Ameritech and SNET, the
partnership also included The Walt Disney Co., BellSouth Corp. and GTE Corp., all of which
agreed to stay in for five years.
After its merger with Pacific Telesis Group, SBC decided
that its focus laid elsewhere, and it claimed that an escape clause in the partnership
contract allowed it to withdraw with impunity. The partners thought otherwise, and they
successfully sued to have the dispute arbitrated, winning a decision by an arbitration
panel last month that could cost SBC as much as $500 million in damages by 2002.
So SBC sued the partners last week in Delaware Chancery
Court here, just one week after announcing its $62 billion merger proposal with Ameritech
and before completing its merger with SNET. The actual parties in the lawsuit are
subsidiaries of the parent companies.
SBC alleged that the arbitration panel exceeded its legal
limits and violated state and federal law by entering judgment against SBC for withdrawing
from the partnership in May 1997.
The arbitration panel not only found that the SBC
subsidiary, SBC Interactive, "had not validly withdrawn from the partnership,"
but it also ruled that the jilted partners could collect damages sometime down the road.
In its lawsuit, SBC complained that the panel ordered it to
pay actual damages, "despite having found that the defendants had proven no
SBC spokesman Brian Rosnanski said the lawsuit "has no
negative impact on our relations with Ameritech or SNET. Our merger with Pacific Telesis
changed our focus and represented a material change in our strategic direction. And, as a
result, SBC decided that it was no longer necessary to own, operate or manage video
networks or to create its own programming, which was one of the principal purposes of
Americast. We're still committed to offering home-entertainment services, but through
As one example, Rosnanski said, SBC signed an agreement
with DirecTv Inc. and U.S. Satellite Broadcasting regarding direct-broadcast satellite
subscribers in apartment complexes.
SBC has asked the Chancery Court for an injunction to block
enforcement of the damages award, and for an order vacating or revoking the arbitration
In a related action, on June 23, the Delaware Supreme Court
will hear SBC's appeal of Vice Chancellor Jack Jacobs' December decision that
ordered SBC to submit to arbitration in the first place. Jacobs rejected SBC's claim
that its withdrawal from Americast was not subject to the arbitration provision of the