FCC upholds Cumulus in battle over trust


Cumulus Broadcasting agreed to a swap with Clear Channel late last year in which it received eight stations in Ann Arbor and Battle Creek MI in exchange for an FM in Canton OH. Midwest Communications objected to the subsequent spin-off on one of the Battle Creek AMs into a trust. The FCC has ruled that the second transaction is perfectly legal.
Stratus Radio LLC is the trust company, headed by Scott Knoblauch — he’s looking after a number of Cumulus radio properties as it prepares for portfolio adjustments necessitated by the plans to take Cumulus private. Knoblauch’s Stratus is tasked with running the stations and shopping them to prospective buyers.
Midwestern charged that the transaction with Clear Channel was illegal because it went over local caps, that it is a sham transaction due to Cumulus’s past dealings with Knoblauch and that it fails to address the "insulation of non-party investors."
The FCC noted that the cap problem was addressed by using the acceptable practice of making the Clear Channel-to-Cumulus and the Cumulus-to-Stratus transactions occur simultaneously. Knoblauch has had business dealings with many companies and is not an employee of Cumulus, so that’s not a problem. Finally, the sum total of interested parties in Stratus is one: Knoblauch. There are no insulated of non-party investors to list. Case closed.
RBR/TVBR observation: as companies have retreated from Wall Street and high-tailed it back to private status, grandfathered clusters built under the old contour overlap market cap definition have had to shrink down a bit. Generally that has meant building a trust as a holding company, usually with a veteran broker at the helm who can both run and market the stations. The loss of grandfather privileges has occurred despite the fact the essential transaction being contemplated is Cumulus to Cumulus, or Clear Channel to Clear Channel. This even happened in Disney/ABC to Citadel since Disney remained on the ownership roster as part of the deal structure. We would note that we haven’t seen any complaint about compliance with this. The companies involved have simply formed their trusts and tried to spin the stations. The biggest problem they’ve faced is finding buyers.