Nexstar Says Buying Tribune Would Keep it Under 39% Cap; Government OKs Expected
Nexstar agreed to buy Tribune for $6.4 billion, they said Monday. The fate of Tribune has been a focus of speculation since its sale to Sinclair collapsed. To stay under the 39 percent national TV-station ownership cap, the deal will include divestitures “approaching $1 billion, plus or minus,” said Nexstar CEO Perry Sook on a conference call. Nexstar is “very focused on complying with the current rules” and isn’t seeking to wait on a revised national cap or change to the UHF discount to get the deal done and approved speedily, he said.
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Those we spoke to expect the purchase to get government OK. Although shares of acquirers often fall on deal announcements, Nexstar closed the day up 6.9 percent at $88.32. Tribune closed up 12 percent at $44.98, $1.52 shy of the per-share acquisition price.
Sook said he spoke with FCC Chairman Ajit Pai by phone Monday to assure him Nexstar had a “comprehensive plan” to comply with regulators. The deal is expected to close late in Q3, Sook said.
Focus on regulatory compliance and Sook’s comments the company will seek to comply with the FCC and DOJ mandates are good signs for eventual approval, attorneys and analysts said. “We would anticipate approval,” Cowen analyst Paul Gallant emailed investors. Timing to OK Gray/Raycom has been pushed back, and DOJ is seen as slow to rule on deals lately, a broadcast attorney said. “Media consolidation is a volatile issue in Washington,” said Gallant. Another attorney noted opinions on media consolidation no longer seem to clearly break along party lines. The upcoming 2020 presidential race and furor over changes to the national ownership cap could affect how the deal is perceived, Gallant said. The FCC didn’t comment.
Nexstar/Tribune got pushback from the likely incoming chairman of the House Judiciary Antitrust Subcommittee, current ranking member David Cicilline, D-R.I. He's concerned the deal “would create the largest local television station owner in the country -- a single gatekeeper of local news for most American households.” Nexstar/Tribune likely would eliminate “direct competition in more than a dozen local markets” and “undoubtedly lead to mass layoffs in newsrooms at a time when our free and diverse press is already under assault,” Cicilline said.
The deal includes payouts to Tribune shareholders if the transaction hasn’t closed by Aug. 31, and one attorney said it’s likely that money will be paid out due to a long regulatory process. Lawyers expect the purchase agreement will specify that Nexstar make every effort to comply with regulatory requirements, especially since Tribune is suing Sinclair for allegedly failing to do so in their ill-fated deal. Tribune, Sinclair and Sook declined to comment on how the deal affects that lawsuit. Sook hopes the transaction will lead to the two sides discussing resolution.
The proposed transaction would include overlaps in 15 markets, though Sook believes in two the final company could operate duopolies within the rules, so it will seek divestitures in only 13. A Nexstar spokesperson wouldn’t comment further. Though Justice appears disinclined toward top-four combos and the FCC has yet to approve one, Nexstar may try to retain some, Gallant said.
Nexstar “should have learned from the spectacular failure" of Sinclair/Tribune, said Free Press CEO Craig Aaron. “Hopefully, the FCC’s rejection of Sinclair’s attempt to buy up these same Tribune stations shows the agency’s newfound understanding of the need for more independent voices and local choices for news.” Nexstar doesn’t carry the same reputation for being politically polarized that Sinclair does, which could mean less backlash, said broadcast attorney Howard Weiss, an opponent of Sinclair/Tribune. Newsmax CEO Chris Ruddy -- another Sinclair/Tribune opponent -- said Nexstar is in a better position than Sinclair because Nexstar made it clear it will follow FCC rules.
Nexstar still supports eliminating the national ownership cap, Sook said Monday. Since the deal will put Nexstar up against the threshold, it will be unable to pursue further large deals until the rules change, he said. Attorneys and analysts differed on whether Nexstar/Tribune could lead to a shift on the cap. Since the FCC says the UHF discount is outdated and Nexstar/Tribune will fit only with the discount, the agency could seek to create an undiscounted cap that accommodates Nexstar/Tribune, Gallant said. Since changing the cap would be politically volatile and the deal doesn’t require it, it’s more likely the FCC will leave the status quo in place, a broadcast attorney said. NAB recently lobbied the FCC to apply the UHF discount to all TV broadcasters, saying it reflects the modern media market. “We think there will be a PR battle” over FCC action on the cap, Gallant said.