Media General/LIN Will Need to Sell TV Stations to Get FCC OK, Says LIN CEO

Executives of both combining companies and observers said the firms hope to convince the FCC that approval is warranted, even though the firms have resource sharing deals including joint sales agreements (JSA), shared services agreements (SSA) and local marketing agreements (LMA). A draft Media Bureau order, likely to get a 3-2 party-line FCC member vote March 31, would make some JSAs attributable under ownership quotas, requiring them to be unwound or scaled back (CD March 21 p1). The bureau also advised stations recently that sharing agreements like the type LIN wants to transfer to Media General would get scrutiny (http://fcc.us/1gaJJwk).

"We're kind of in this uncharted territory,” said LIN CEO Vince Sadusky, who will keep that job at the combined company and be one of four directors LIN will name to the 11-member board. “Historically, grandfathered LMAs have transferred” in deals, and JSA and SSAs hadn’t been an issue in transactions, he said. “Given our credibility and our history, we're hopeful we can have these licenses transfer in the current structures without too much disruption.” LIN has “a terrific history of kind of proving out the community service aspect,” as does Media General, said Sadusky, seen among broadcast executives and lawyers as having been aggressive to expand into digital ad sales. The “proven track record” of increasing community service and localism hopefully “has traction in today’s regulatory environment,” and “is what the FCC is really looking for with its public service mandate,” said Sadusky.

FCC rules based on the bureau’s guidance “are still kind of evolving,” and the companies’ divestiture plans aren’t fully formed, said Sadusky. “The regulatory environment is uncertain.” The companies’ plan will include some station divestitures, and there are five markets where LIN and Media General both own stations, said Sadusky and M&A foe Free Press. “It definitely includes a sale of at least one television station” in those markets, said Sadusky. The markets are: Birmingham, Ala.; Green Bay/Appleton, Wis.; Mobile, Ala./Pensacola, Fla.; Providence/New Bedford, Mass.; and Savannah, Ga., said Sadusky and Free Press Research Director Derek Turner. Station sales or swaps are possibilities, and there won’t be “fire sale” prices, said executives of the combining companies on a conference call Friday with analysts and investors. The companies expect to complete the deal in early 2015, they said.

Neither the commission nor anyone else “really knows yet whether Media General can keep its SSAs,” said analyst Paul Gallant of Guggenheim Partners. “But both companies have a pretty clean, conservative approach to Washington that probably gives them a decent shot at it.” Executives of the companies said they'd always worked well with the FCC. Stock analyst Edward Atorino of Benchmark said he doesn’t know what the FCC will do -- “it’s all guesswork.” Media General has “got to sell” some stations, said Atorino. By his count, LIN has four JSAs. “The real problem with the FCC is JSAs,” said Atorino.

Turner counted 3 SSAs for LIN, 2 LMAs from before 1999 that function like combined SSAs and JSAs, and 4 SSA/JSAs. LIN/Media General would have the third-highest number of U.S. TV stations operated under outsourcing agreements, said Turner, following Sinclair and Nexstar. What LIN and Media General said about making divestitures is “an improvement” from other broadcast deals, said Policy Director Matt Wood. “We're not fans of concentration, but we're not looking at any sort of rule violations occasioned by this deal,” at least that he can see at first glance, said Wood. “If there’s a de facto transfer of control, then they shouldn’t be permitted,” he said of JSA, LMA and SSAs at LIN or Media General. Those pacts also would need to be unwound if they exceeded the standards in what the FCC will vote on March 31, said Wood.

That a broadcaster would attempt a deal of this size with an FCC vote nearing on an order to attribute some JSAs surprised longtime broadcast economist Mark Fratrik. “I thought the M&A was going to slow down, in particular because of the FCC activity,” said Fratrik, chief economist of industry researcher BIA/Kelsey, which has done work for broadcasters. “It is a vote of confidence,” so more deals may follow, said Fratrik. “Once you get a big deal like that being announced, then everyone thinks it’s a possibility in the industry.” M&A of $8.8 billion among TV stations in 2013 was the highest annual total since 2006 when Univision was taken private, said Fratrik. Announced deals in 2013 included Media General buying a company associated with Young Broadcasting, Tribune buying Local TV, Gannett buying Belo and Sinclair agreeing to buy Allbritton Communications’ TV stations, Fisher Communications and Barrington Broadcasting. Last week, Sinclair restructured its deal for Allbritton’s TV stations, to comply with the bureau’s guidelines on broadcaster sharing arrangements (CD March 21 p16).

"Rumors of the death of M&A are greatly exaggerated, and aren’t even close,” said broadcast broker Frank Kalil, president of Kalil & Co. “It’s a matter of survival” and the industry “will survive,” he said. “This is not a partisan issue,” he said of broadcast ownership. “What’s the right thing to do, regardless” of political party, asked Kalil. “They haven’t put a noose around every aspect of enterpreneurship” in broadcasting, he said. “The problem is changing things midstream. The horse is out of the barn ... That is grossly unfair.” (jmake@warren-news.com)