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California Court of Appeal holds businesses not unitary, merger termination fee is business income

On Dec. 14, 2016, the California Court of Appeal held in a long-anticipated decision that (i) a unitary relationship did not exist between Comcast and its majority-owned subsidiary, QVC Inc., and (ii) the $1.5 billion termination fee received by Comcast as a result of a failed merger with another cable system operator was business income subject to apportionment. The Court held that Comcast and QVC were not unitary because they were not vertically integrated, lacked centralized management, generated no economies of scale and produced no other flow of value. As a result, the companies were not integrated with each other, and neither company was dependent on or contributed to the other under the legal standards for determining a unitary business. The merger termination fee satisfied the transactional test for determining business income because Comcast had a history of engaging in cable acquisitions.