Nexstar’s Apolitical Vibe Won’t Cure All Merger Ailments

By Kelcee Griffis

Law360 (April 5, 2019, 9:10 PM EDT) — Sinclair Broadcast Group’s bid to acquire Tribune crashed and burned before the FCClast summer, but Nexstar’s effort to become buyer No. 2 is widely believed to face fewer hurdles even though it comes with baggage of its own.

Nexstar’s offer has been expected to face a much easier path than Sinclair because it will be aided by a perception that it is less political than Tribune Media Co.’s former suitor and is less likely to generate animosity from outside parties — although a new lawsuit may foreshadow other obstacles.

Sinclair lost its chance to buy Tribune last summer after the FCC suggested it hadn’t been candid in divestiture arrangements it proposed to comply with FCC media ownership limits. While an in-house judge eventually cleared Sinclair of wrongdoing, some attorneys suggest that Nexstar will benefit from less heated rhetoric as well as a more defined blueprint for success.

“Nexstar seems to be playing a great corporate citizen,” said Morrison Cohen LLP partner David Scharf. “And I think regulators like to reward that type of above-board, clear, clean conduct.”

So far, Nexstar has reached deals to sell 19 TV stations totaling $1.32 billion to resolve regulators’ antitrust concerns with the $6.4 billion deal, which was first unveiled in December. Nexstar’s CEO has said that the Tribune deal was only announced after developing “comprehensive regulatory compliance” and integration plans.

Sinclair had been criticized by liberal groups and opponents of media consolidation for pushing conservative-slanted “must-run” political segments onto local stations. Many of its critics also suspected the broadcaster was planning to use the Tribune buy as a way to challenge the ranking of News Corp.’s Fox Network atop the pantheon of nationwide conservative news outlets.

In contrast, Nexstar’s bid may be more palatable to the FCC because its business model has fewer political connotations.

“Less polarizing in this current political climate is always going to be welcome,” Scharf said. “It keeps the pressure points of people who are interacting with the FCC or DOJ from not having to grind political capital they may have … That makes a regulatory approval process simpler, when you’re not getting the phone calls and being called to the Hill or called to the Oval to discuss what’s happening.”

Indeed, the Sinclair deal became problematic for the FCC when questions arose about whether the White House had pressured the ostensibly independent FCC and U.S. Department of Justice to approve the deal. FCC Chairman Ajit Pai was even investigated — but eventually cleared — by the agency’s inspector general over whether he made rule changes to benefit Sinclair.

When the FCC announced it would designate the deal for review by its in-house judge, President Donald Trump fueled suspicion by tweeting that the FCC’s move was “sad and unfair” because the combination would’ve boosted “a great and much needed Conservative voice.”

Not long after, Tribune sued Sinclair for tanking the deal. In its lawsuit, Tribune alleged that Sinclair employed aggressive negotiation tactics at both the FCC and the DOJ to defend divestiture proposals that government officials were sure to reject.

“Nexstar has the advantage of the failed Sinclair process, meaning if you understand how and why they failed, they can avoid the pitfalls,” Scharf said.

This time around, Nexstar must diligently lay the groundwork to craft a proposal the FCC will feel invested in, said Francisco R. Montero, a Fletcher Heald & Hildreth PLC attorney and former FCC official.

For Sinclair, the kiss of death had been the assertion that the broadcaster hadn’t revealed it would effectively retain control of three divested stations even after repeated warnings. A successful party would instead build FCC staffers’ advice into its amended proposals and demonstrate it’s taking agency divestiture demands seriously, Montero said.

“It’s OK to be a little aggressive and push back a little bit, but you have to work collaboratively,” Montero said. “At the end of the day, you want buy-in from commission staff.”

To Scharf, this work ethic has been apparent in Nexstar’s merger documents at the FCC. The broadcaster has already been forthcoming about one market in which it would own too many top-four stations if the acquisition is approved, and it pitched a sale structure to allay those concerns, he said. The company further clarified to the FCC that it would operate other duopoly combinations from Tribune but that no new combinations would be struck.

“They recognized where the FCC was going to look and what the FCC regulations were going to require them to do,” he said. 

However, Nexstar ran into a speed bump Wednesday, when a minority-owned broadcaster sued with claims that the media behemoth used a sale of three TV stations to curry favor with federal regulators in 2014 before it gutted the businesses, hoping to buy them back cheaply.

The lawsuit came “out of nowhere” and could draw scrutiny to Nexstar’s prior transaction record as well as its current plans, said policy strategist David Goodfriend. “That’s a new development that casts a little bit of a question over this merger,” he said.

For example, the 19 spun-off stations would go to two major broadcasters — Tegna Inc. and E.W. Scripps Co. — instead of giving smaller broadcasters a shot at expanding, he said.

“It doesn’t really add to media diversity,” Goodfriend said. “The optics of that are not good.”

It’s also a concern that Nexstar announced the details of its divestiture plan within a couple days of a March 18 deadline for filingpetitions to deny the merger, according to Goodfriend, whose group Sports Fans Coalition opposes the deal. This could suggest either that the merger plan isn’t airtight or that the parties are trying to “obfuscate what’s going on,” he said.

“That should’ve pushed back the deadline for those petitions. It should’ve given everybody more time to consider the divestitures, and it made me think they’re hiding something,” Goodfriend said.

While Nexstar may enjoy an advantage of a less charged regulatory environment, former Democratic FCC Commissioner Michael Copps said the size and scope of Nexstar-Tribune is very similar to that of Sinclair-Tribune, warranting careful and independent consideration.

“Sinclair attracted more media attention, I guess, because of the arguments over political preferences,” Copps said. “But they’re very similar kinds of things when you get to the bottom line.”

Ultimately, the FCC’s job is to independently evaluate whether any transaction serves the public interest, and that may yet be a high bar for Nexstar to meet.

“I don’t see that Nexstar has come anywhere near to doing that,” Copps said.

–Additional reporting by Christopher Cole. Editing by Pamela Wilkinson and Emily Kokoll