Ownership Stay Denial Won't Spur Dealmaking—Yet
Broadcasters need more information to start dealmaking after the 3rd U.S Circuit Court of Appeals’ rejection of a stay request (see 1802070053) for the FCC’s relaxation of broadcast ownership rules, said analysts, broadcast attorneys and TV brokers in interviews. Broadcasters aren’t likely to wait for the public interest challenge of the agency’s media ownership reconsideration order to be decided on the merits, but they want to see how the FCC and DOJ treat Sinclair/Tribune (see 1802090039) before pulling the trigger on transactions, said Wells Fargo analyst Marci Ryvicker. “Nobody wants to be the test case,” said Todd Hartman, vice president at TV broker Kalil & Co.
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There’s still uncertainty about how the FCC will implement its relaxed media ownership rules, and specifically the case-by-case weighing of applications to own two top-four stations in the same market, Cowen analyst Paul Gallant said. It’s also not clear how DOJ will handle the transactions allowed by the recon order, said Noble Capital Markets analyst Michael Kupinski. Antitrust regulations could end up being a barrier to deals that would be allowable under just the FCC’s rules, Ryvicker said. “Certainty of close” is a major factor when stations are deciding to do a deal, and so many regulatory unknowns make it difficult for buyers and sellers to reach an agreement, Hartman said.
The Sinclair/Tribune deal is also an important data point for broadcasters because it’s seen as likely to lead to divestitures, and where those divestitures go affects the landscape for dealmaking, Ryvicker said. Though broadcasters will wait for a decision on Sinclair/Tribune, they're unlikely to wait for the legal challenge of the recon order from Prometheus Radio Project and Media Mobilizing Project to be decided on the merits, she said. “The rules are effective now,” she said. If the 3rd Circuit rules against provisions of the recon order that affect transactions, the FCC could issue waivers to keep those deals from being unwound, she said. Court reversals rarely have led to such deals being unwound, but it doesn’t take much risk to make banks unwilling to finance transactions, said Fletcher Heald broadcast attorney Steve Lovelady.
Though broadcasters are waiting to announce deals, discussions about prospective transactions already are happening, all the analysts said. Kupinski and Ryvicker predicted most dealmaking following the relaxed rules will be in the form of station swaps. "Those plans are already underway,” Kupinski said. The NAB Show in April could lead to a spate of deals, because it will bring so many broadcasters together, Kupinski said
A focus on station swaps means when dealmaking does happen, it’s won’t be as though the FCC “opened the floodgates,” Ryvicker said. Station swaps take a long time to negotiate since both parties need to believe they’re getting a good value for their station, Ryvicker said. That would likely slow the pace of transactions, she said. BIA/Kelsey Chief Economist Mark Fratrik said many groups could seek to buy stations they already control through joint sales agreements or other sharing arrangements. Broadcasters likely also will look to pick up lesser stations in markets they already have a strong presence in, he said.
The new tax rules could provide a small, additional spur to broadcaster dealmaking, Ryvicker said. Since the rules are likely lead to many broadcasters having some additional cash on hand, it could be ploughed into mergers and acquisitions, she said.