The Federal Communications Commission’s decision to shelve and probably kill the $5.4 billion purchase of TV station owner Tegna Inc. delivers a warning to would-be media acquirers: Proceed at your own risk.
The agency on Feb. 24 sent the proposed transaction by Standard General LP to a hearing, likely delaying a decision beyond the parties’ May 22 deadline to close the deal. The order was issued by the FCC’s media bureau, which administers policy and licensing for TV and radio stations.
The decision is likely to chill further dealmaking in areas where the FCC holds sway, according to Standard General managing partner Soo Kim, as well as analysts who follow the agency. Going to a hearing would effectively “kill the deal,” he said in a statement.
“If we let this stand, we let whoever is in charge of the media bureau, typically the chair, decide any renewal or licensing decision,” Kim said in an interview with Bloomberg News.
Standard General asked the agency in a statement Monday to reconsider its decision and allow a vote on the deal by the full commission.
The FCC declined to comment. Tegna, which operates 64 TV stations, said in a regulatory filing it is evaluating its options.
Bidding War
Standard General agreed to buy Tegna in February 2022 after an extended bidding war and courtship. The proposed buyer already owns four stations.
The NewsGuild-CWA union challenged the merger, arguing in filings before the commission that the change in ownership would cost newsroom jobs and raise fees for cable and satellite TV distributors. Other opponents included consumer activist Common Cause and the United Church of Christ Media Justice Ministry, a faith group active in media issues.
A number of high-profile Democrats raised questions about the deal, including Massachusetts Senator Elizabeth Warren, a former law professor and frequent critic of mergers. California’s Nancy Pelosi, then serving as speaker of the House, urged the FCC to scrutinize the deal last year.
After responding to critics for months in filings, Standard General in December offered concessions on its own, promising no job cuts for two years and saying it wouldn’t enforce contract terms that could allow it to raise fees for TV distributors.
The FCC decision breaks precedent in a number of ways, according to former agency official Blair Levin, now a Washington-based analyst for NSR Research.
A First
It’s the first time the FCC didn’t give applicants a chance to offer remedies to objections, and the first time the agency blocked a merger of such size through bureau action, Levin said in a note to clients Monday. Normally, commissioners vote on sizable mergers.
“In light of this precedent, we struggle to find any institutional or judicial constraint on any chair effectively blocking any transaction on any grounds the chair deems to be in the public interest,” he wrote.
The move is in line with broader Biden administration policy. Securities, antitrust and broadcast TV regulators have been resisting private equity mergers by proposing tough rules, slow-walking deals and scrutinizing acquisitions that would consolidate industries or result in job losses.
The commission has two Democrats, including its chair, Jessica Rosenworcel, and two Republican commissioners, with a fifth member, Democratic nominee Gigi Sohn, still awaiting Senate approval. On Friday, the two Republican commissioners criticized the decision to order a hearing and called for a vote instead.
The FCC’s action “seems to have been done to placate very liberal political groups and their illogical demands,” said Michael O’Rielly, a Republican former FCC commissioner. “It completely ignores the enormous pressure the U.S. broadcasting industry faces against hyper-competitive streamers and rests on fake excuses.”
Candor Issue
Daniel Kurnos, an analyst with Benchmark Co., said problems with the deal stem in part from its complex structure. That included an initial step of buying a single TV station in Boston from an affiliate of Apollo Global Management Inc. The alternative asset manager is helping finance the deal, as well as exchanging broadcast properties with Standard General.
“It seems evident upon reading between the lines of the order that the FCC both believes that something illicit is going on with the deal structure and that Standard General effectively lied in their responses, bringing up the nonnegotiable topic of candor,” Kurnos said in a note.
The agency may have been swayed by critics of private equity, as well as the letters from lawmakers, said Steven Cahall, a Wells Fargo analyst.
“If there’s a lesson here, it’s that the FCC is a political force as well as a regulatory one,” Cahall said in a Feb. 26 research note.
Standard General has positioned the merger as one that would create the largest minority-owned TV station owner, because Kim is a South Korean immigrant. The company planned to appoint a female chief executive officer, Deb McDermott, when the transaction closes. It’s considering whether to sue the agency, according to two people with knowledge of the matter. However, courts are unlikely to intervene in an ongoing matter, Levin said.
Some observers also say the deal suffered from a lackluster lobbying campaign by Standard General and its allies.
“It’s not sufficient for a private equity firm to say, ‘This is the case,’” said Nathan Leamer, a former Republican FCC aide. “There is an actual political dimension that needs attention.”
Standard General’s prospects for completing the deal aren’t good, according to O’Rielly, the former Republican commissioner.
“If this relatively small deal is ultimately withdrawn, which seems likely, it is hard to see another broadcasting deal of any weight being approved during this administration,” he said.
