Broadcasters Face 2019 M&A Uncertainty, With Regulatory Questions, Possible Divestitures
The new year won't see a major decline in uncertainty for radio and TV station owners considering big mergers and acquisitions, at least right away. Questions about the final disposition of FCC rules on M&A, divestitures that haven't been finalized and other issues remain pending, an array of experts agreed in interviews last week.
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There was $8.87 billion worth of broadcast dealmaking in 2018, Standard & Poor's Kagan emailed Thursday. That’s an increase of 8 percent over 2017. The biggest deal announced in 2018 was Nexstar’s proposed buy of Tribune, followed by Gray’s now-completed buy of Raycom (see 1901030048), S&P said. The top radio deal was Bonneville’s $141 million buy of eight stations from Entercom. In 2019, much broadcast dealmaking is likely to be shaped by the FCC’s ongoing 2018 quadrennial review proceeding (see 1812130052) and a perception that DOJ is subjecting broadcast transactions to additional scrutiny, said broadcasters, brokers and analysts.
In 2019, in-market TV deals will likely continue to be stalled by uncertainty over the FCC’s stance on top-four combinations, said Gray Television Vice President-Government Relations and Distribution Rob Folliard. Proposals to create a bright line standard for when deals involving combinations of the top four network stations in a single market are part of the quadrennial review NPRM, but a QR order is unlikely to be voted on by commissioners until late in 2019, and a subsequent court challenge is considered guaranteed, broadcasters said. A test case involving an application by Gray in Sioux Falls, South Dakota, has been at the agency since May, making it unlikely other broadcasters will propose top-four combos. That uncertainty is “certainly holding up dealmaking,” Folliard said.
Broadcasters and analysts expect significant TV transactions in 2019, especially divestitures from Nexstar/Tribune. None has been announced, but Nexstar CEO Perry Sook said he expects to divest close to $1 billion worth of stations to bring the transaction into compliance with FCC and DOJ policies (see 1812030055). Nexstar said the deal is expected to be approved in Q3. Those sales, plus an expected announcement from Cox in 2019 that it found buyers for its stations, is likely to lead to an active TV transaction market in 2019, Folliard said. Broker Bob Heymann from the Chicago office of Media Services Group expects “normal, organic dealmaking where a group sees a potential opportunity” in TV broadcasting.
One possible drag on TV dealmaking is the likely absence of Sinclair as buyer, said broadcast officials. With resolution of the Sinclair/Tribune hearing designation order up in the air, no seller can have confidence a deal would get timely approval, the officials said. Attorneys said a Sinclair transfer of control application could force the FCC to take up the issues of candor raised in the HDO before Sinclair’s license renewals in 2020. Sinclair recently objected to an American Cable Association petition urging the FCC to do that (see 1812110062).
The prospect of a QR order that would significantly relax radio local ownership limits may also have “a dampening effect” on radio dealmaking in 2019, said Heymann. The NPRM seeks comment on an NAB proposal to eliminate AM/FM caps entirely outside the top 75 markets, which would create deal opportunities in a host of markets where singletons or very small station combo owners are competing with much larger groups, Heymann said. It would be a reasonable strategy for buyers to “keep their powder dry” while they wait to see the prospects for that proposal, Heymann said.
Industry officials have been looking at reorganizations of iHeartRadio and Cumulus to spur radio transactions. But it’s not clear that spinoffs are expected from those companies, said Hubbard Radio Chief Operating Officer Drew Horowitz.
DOJ review is also a likely factor for 2019 broadcast deals, said Cowen analyst Paul Gallant. DOJ review of Gray/Raycom took months longer than similar deals did under preceding administrations, industry officials said. DOJ approval of Gray/Raycom showed antitrust regulators paying particular attention to retransmission consent and top four combos, Folliard said. A “growing split” between the FCC and DOJ on top-four combinations could “dissuade companies from pulling the trigger,” Gallant said.
Editor's note: This is the second part of a two-part series on media M&A. Part I reported on predictions that there may not be any blockbuster pay-TV M&A this year (see 1901040029).