By Adam R Jacobson
RBR + TVBR
On Sept. 2, the Department of Justice gave its blessing to Nexstar Broadcast Group’s $4.6 billion merger acquisition of Media General Corp. – so long as Nexstar sheds seven stations in six different markets.
The DOJ’s approval came a little more than seven months after Nexstar and Media General came to a merger agreement, following the aborted attempt by Nexstar to combine operations with Meredith Corporation.
Following the DOJ’s OK, George Reed, Managing Director of Media Services Group, told RBR + TVBR, “There are no real FCC issues, and I don’t see any reason why it wouldn’t close.”
Yet, the Nexstar-Media General deal hasn’t closed. That’s led a trio of House of Representatives members to push FCC Chairman Tom Wheeler to approve the deal ASAP, and not wait for the end of the Commission’s broadcast spectrum incentive auction — which could be another six months.
The FCC’s inaction has also led investors to shed Nexstar shares in a significant way: They are down more than $10 a share in just three weeks, based on Thursday’s trading activity.
RBR + TVBR OBSERVATION (Full Text For Subscribers Below): Following the DOJ’s OK, George Reed, Managing Director of Media Services Group, told RBR + TVBR, “There are no real FCC issues, and I don’t see any reason why it wouldn’t close.” There is a real FCC issue, however, and it is Chairman Tom Wheeler, who sent the television industry into a tizzy over his somewhat mysterious set-top box plan while the cat-and-mouse game between wireless services companies and television broadcasters in finding a reasonable clearing target for the broadcast auction goes on and on.
Under the terms of the proposed settlement, Nexstar must complete the following deals, as ordered by the Justice Department:
- KWQC-TV, in Quad Cities, Ill.-Iowa and WBAY-TV, in Green Bay, Wisc., to Gray Television Inc.
- WSLS-TV, in Roanoke-Lynchburg, Va. to Graham Holdings
- KADN-TV and KLAF-LD, in Lafayette, La. to Bayou City Broadcasting Lafayette Inc.
- WFFT-TV, in Fort Wayne and WTHI-TV in Terre Haute, Ind. to USA Television MidAmerica Holdings Inc.
However, these deals can’t close either — thanks to the incentive auction, which resumes Nov. 1 with Stage 3 of the Reverse Auction.
The holdup on the Bayou City deal, in particular, has been a key point of frustration for Reps. Cedric Richmond (D-Louisiana), Sheila Jackson Lee (D-Texas), and Yvette Clark (D-New York).
On Tuesday (Oct. 25), the trio of African American Congressional members penned a letter to FCC Chairman Tom Wheeler expressing their concern about “the possible unintended impacts the moratorium could have in diversity in broadcast ownership.”
The trio note that Bayou City “is the only African-American broadcaster in the United States to own, operate and manage every aspect of its television stations.” With African American broadcast ownership of commercial licenses at 2%, they point out that Blacks “face ongoing challenges in accessing private sector funding to fully participate in media ownership.”
They note, “The company’s success represents tangible progress toward increasing minority ownership in media. [Bayou City] is currently in the process of acquiring Fox and NBC affiliates through the divestiture provisions of the Nexstar and Media General merger. With the uncertain timing of the end of the incentive auction, however, it is difficult to determine when this deal may ultimately close. With this in mind, we strongly urge the Commission give full consideration to the request being filed by Nexstar and Media General seeking a limited waiver of the auction rules allowing them to close their merger and related transactions prior to the completion of the incentive auction.”
The note to Wheeler follows communication on Oct. 5 from the National Association of Broadcasters General Counsel and EVP/Legal and Regulatory Affairs Rick Kaplan, who asserts, “The merits of the proposed transaction have been thoroughly and comprehensively argued before the FCC, and the Department of Justice has blessed the merger. There is no good reason for further delay.”
Kaplan also pointed to the ownership diversity resulting from the Nexstar spins, citing the Bayou City deal.
“Given DOJ’s approval, and the fact that the Commission has well exceeded its 180-day shot clock for reviewing major transactions, NAB urges the Commission to fulfill its duty to process the transaction immediately,” Kaplan wrote.
Twenty-two days later, the FCC has yet to react while adopting rules Thursday (Oct. 27) that require broadband Internet Service Providers (ISPs) to protect the privacy of their customers. The rules, in the FCC’s words, “ensure broadband customers have meaningful choice, greater transparency and strong security protections for their personal information collected by ISPs.”
The rules were passed on yet another party-line 3-2 vote, with Republican Commissioners Ajit Pai and Michael O’Rielly dissenting.
AN OCTOBER HIGH-OCTANE STOCK SWOON
As RBR + TVBR pointed out on Oct. 17, online financial analysis portal CapitalCube officially proclaimed Nexstar a “bearish” company, as NXST shares breached their 50-day moving average as of the closing bell on Oct. 14.
While Nexstar’s share price performance of 6.09% over the last 12 months is above peer median performance of -9.41%, and Nexstar Class A shareholders of record as of Friday, Nov. 4, will receive a quarterly cash dividend of 24 cents per share on Nov. 18, there is cause for concern.
With its quarterly earnings set for release Nov. 8, NXST shares are in a free-fall and well below its one-year target estimate of $66.50.
Media General shares have also slumped since climbing to $18.54 on Oct. 5 — its highest level since August 2014. As of 11:25 a.m. Eastern on Thursday, MEG shares sit at $16.94, wiping out three months of gains.
Such dips may not be isolated to Media General or Nexstar, however, and could apply to similar situations involving other TV or radio companies. That’s according to Bob Heymann, Director of Media Services Group’s Chicago office, who says, “In general, when it comes to broadcast transactions, the market hates uncertainty, and time kills deals.”
RBR + TVBR OBSERVATION: Following the DOJ’s OK, George Reed, Managing Director of Media Services Group, told RBR + TVBR, “There are no real FCC issues, and I don’t see any reason why it wouldn’t close.” There is a real FCC issue, however, and it is Chairman Tom Wheeler, who sent the television industry into a tizzy over his somewhat mysterious set-top box plan while the cat-and-mouse game between wireless services companies and television broadcasters in finding a reasonable clearing target for the broadcast auction goes on and on. From the NAB to three members of Congress, their voices are clear — the Commission must fulfill its duty to process the transaction immediately. Why? Because, Mr. Wheeler, your inaction has morphed into tortious interference of business activities. By doing nothing, the FCC has likely led cautious investors to sell their Nexstar shares, instead of waiting and waiting and waiting. Get this done, and you will no longer be unfairly punishing a broadcast company on Wall Street.