What Happens Next for Nexstar and/or TEGNA?
Normally by this point on a Friday evening, we would be enjoying our first cocktail and contemplating life. But on this Friday in April, we are at the keyboard and contemplating the news that U.S. Judge Troy L. Nunley has ordered today that he will need another week to decide whether to grant a permanent injunction that could block the $6.2 billion deal allowing Nexstar Media Group to acquire TEGNA. Thus, his temporary restraining order, which was supposed to expire today, will last another seven days. At least.
These are the occasions where we sincerely wish we had made our parents happier some fifty-plus years ago, when we firmly decided to study journalism rather than pursue the idea of going to law school. But we didn’t, and so here we are, trying to understand what will be the legal fate of the union to create the largest group of local television stations under one owner in the United States.
Just a quick recap here, the Nexstar-TEGNA deal was approved by both the Federal Communications Commission and the U.S. Department of Justice back on March 19th. Within hours after receiving those approvals, Nexstar quickly moved to close on the deal to acquire TEGNA. The speed of that action surprised many until it was announced that both DirecTV and a group of state attorneys general weren’t happy and were heading to court. The California Eastern District Court received the request for a temporary restraining order and, Judge Nunley, after reviewing the details laid out by the plaintiffs, issued the initial 14-day TRO on March 27th.
In today’s new order, the judge lifted some restrictions in order to allow TEGNA to continue normal business operations, though now as an independent subsidiary of Nexstar. What that means is that TEGNA still has its own leadership making day-to-day decisions about the company’s stations (with some limitations), and it will send revenues to Nexstar. That’s important because Nexstar initially told Judge Nunley that, when the deal closed, a chain of events was set in motion that effectively could not be undone.
We’ve heard from a number of now-former TEGNA shareholders who have already received their checks for $22.00 per share of TEGNA stock they previously owned. Hopefully, those checks were immediately cashed. But that means Nexstar has already paid out significant cash for a company it doesn’t yet completely control.
Now we don’t claim to have any inside sourcing on what follows, but we have to imagine that there is some serious maneuvering going on behind the scenes to figure out what will happen whenever Judge Nunley decides what his decision will be on allowing the claims from both DirecTV and the Attorneys General from eight different states to proceed. All of which is now consolidated into a single lawsuit against Nexstar and TEGNA.
Here are our best guesses on three different scenarios potentially playing out (And of course there are likely others that we haven’t even thought of.)
Nexstar Sticks To Its Stated Position - Nexstar previously told Judge Nunley that, in basic terms, “the deal is done, and can’t really be undone” in terms of what has occurred in the short time since the close. The company’s lawyers said that even a temporary blocking of the deal would cause “immediate operational harm to TEGNA and Nexstar, regulatory conflicts, and a governance vacuum.” The problem with this scenario is that Judge Nunley granted the first restraining order, acknowledging that, in its presentation to the court, DirecTV had “established a likelihood of success on the merits” of its claim that the merger violated antitrust laws.
The Deal Collapses - Though highly unlikely, Nexstar could say to the judge that if he were to issue a permanent injunction against the deal closing, it would suffer irreparable harm and financial ruin (along the lines of a potential bankruptcy), so rather than face that possibility, it would have no choice but to send TEGNA back to being a separate company. How that might work is so far beyond our legal and financial understanding, we won’t even hazard a guess. (Again, we should have listened to you back then, Mom.)
A Compromise is Reached - One thing we know for sure, Nexstar CEO Perry Sook didn’t get to where he is without knowing how to “wheel and deal” like the salesman that he started in this business as. Making DirecTV happy probably would involve some offer to hold all former TEGNA stations to their existing retransmission agreements, at least in terms of fee structure, for a period of some fixed length - say, perhaps two or more years. Then, to those attorneys general from the various states, some offer to spin off some TV properties in those markets where Nexstar would own more than two stations. For instance, in Denver, where Nexstar would have ended up with four television stations after the deal, KDVR (Fox) and KWGN (CW) that it already owned, plus TEGNA’s KUSA (NBC) and KTVD (MyTV). Nexstar could offer to divest KTVD, and even KWGN if needed. Or just KUSA if Colorado’s AG thought that was needed “in the public interest.” A reminder that a court of appeals ruling last summer threw out the former rule that typically prevented one company from owning more than one local station affiliated with the so-called “Big Four” networks (being ABC, CBS, FOX, and NBC.)
This third scenario could allow Nexstar to acquire a significant number of the TEGNA stations, especially in major markets such as Dallas, Houston, Atlanta, Washington, and Phoenix, where Nexstar didn’t already own a “big four” network station. In other top-20 markets such as Tampa-St. Petersburg, Denver, Cleveland, and Sacramento, where Nexstar was going to end up with two (or more) stations affiliated with the “big four” networks, sacrifices might have to be made.
Certainly, this would be seen as far from ideal for Nexstar, but if it were the only path to get past a permanent injunction on the original deal to acquire TEGNA, well, as the old proverb puts it succinctly: “Half a loaf is better than none.”
Don’t even get us started on the question of who might step up to buy the stations that Nexstar would have to divest itself of? There aren’t a lot of companies with a spare billion or more lying around, waiting to either become first-time television station owners or to grow their existing portfolio of stations at a large scale.
Or is there?
One thing is for certain: no matter how this all plays out, there will be a lot of lawyers involved, and significant billable hours are already accumulating.
With all that in mind, we’re going to go have that cocktail now, and strongly reconsider many of our life choices.
Here’s hoping you have a great weekend.
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