Standard Vows to Fight HDO; Tegna Weighing Options
Standard General Managing Partner Soohyung Kim vowed to continue pursuing the purchase of Tegna and urged the FCC to vote on the deal, in a release Monday, but Tegna’s earnings earnings release that morning said the company is “currently evaluating its options.”
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The Media Bureau’s hearing designation order (HDO) is still expected to lead to the deal’s demise and could indicate a shift in the FCC’s stance on retransmission consent, broadcast and MVPD attorneys told us (see 2302240068). The deal “may be scuttled not due to substantive or evidence-based concerns, but rather by the Media Bureau’s unexplained view that Standard General simply should not be allowed to own these television stations,” and that sets a precedent that broadcast buyers “must meet the test of being acceptable to the Media Bureau in its sole, absolute and unreviewable discretion,” said Kim. “This precedent, if allowed to stand unchallenged, will turn the ‘Public Interest’ standard on its head by restricting investment in and ownership of wide swaths of the economy to those deemed acceptable by regulators.”
The terms of the agreement allow either party to walk away from the deal if the FCC designates the transaction for hearing, and Tegna would pocket a $136 million payout. Tegna’s board voted to stay in the deal last week, extending an optional breakup date to May 22 (see 2302220064). The HDO “is tantamount to denying the transaction by initiating a lengthy process that would extend well beyond the transaction’s Final Extension Date of May 22, 2023,” said Kim: The FCC should "formally vote now on the proposed transaction and render a decision on the merits.” In the release accompanying the HDO, FCC Chairwoman Jessica Rosenworcel said the agency “will take the time needed” to address “critical questions" about the deal.
Standard doesn’t have much recourse outside the hearing process, broadcast attorneys said. Under FCC rules, the HDO can’t be appealed to the full commission until the FCC Administrative Law Judge Jane Halprin makes a final determination. If Standard were to go through that process and appeal, it would still take three votes to overturn it. That's considered unlikely, though both Republican commissioners condemned the HDO Friday. “After a protracted, nearly yearlong review, the Commission should be providing the parties with a decision on the merits -- not an uncertain future,” said Commissioners Brendan Carr and Nathan Simington in a joint statement.
The broadcasters could request a writ of mandamus from the U.S. Court of Appeals for the D.C. Circuit, but it’s extremely unlikely the court would grant it, broadcast attorneys said. The lack of options is why HDOs traditionally lead to deals being dissolved, attorneys said. “What this normally does is spike the deal,” said Holland & Knight broadcast attorney Charles Naftalin. He said the hearing proceeding could last from several months to several years.
The HDO’s focus on rising retransmission consent rates from the deal appears to be a shift in the FCC’s thinking, said MVPD attorneys. The order notes the agency’s ruling approving Nexstar’s buy of Tribune, in which the FCC said increased retrans rates likely weren’t a public interest harm if they arose from a functioning, competitive market. Broadcast merger applications have repeatedly used this ruling to refute arguments from MVPD groups that a given transaction shouldn’t be approved due to the threat of higher retrans rates, but the HDO indicates there are situations where the FCC could consider higher fees a harm, said Ross Lieberman, formerly of ACA Connects. Lieberman is now senior vice president-government affairs at Hotwire, which isn't a party in the Standard/Tegna proceeding.
In Standard/Tegna, “there is a substantial and material question of fact as to whether any increase in retransmission fees as a result of this transaction is the result of a properly functioning, competitive marketplace,” the HDO said. The HDO also focused on after-acquired clauses in retrans contracts, which is also new territory for the agency, MVPD attorneys said. Challenges to merger proposals that can show rising retrans rates are likely to increase due to the HDO, they said. After-acquired clauses are contract terms between two private parties, and the agency’s jurisdiction in that area isn’t clear, said Naftalin, However, broadcasters considering deals that involve after-acquired clauses and retrans increases are likely to feel “a cold breeze down the back of their neck” as a result of the HDO, he said.