ALJ Rules Standard/Tegna Won't Go to FCC Vote
The FCC’s administrative law judge won’t pause the hearing process and put the Standard/Tegna deal in front of the full commission, said an ALJ order Thursday. After that decision, Standard General asked three FCC commissioners to trigger “must vote” on the transaction, which would require Commissioner Geoffrey Starks to split with Chairwoman Jessica Rosenworcel to side with the agency’s Republicans. That's considered unlikely.
The company is also expected to turn to the courts, but that's also considered unlikely to succeed. With financing expected to expire May 22, the deal is likely to collapse, said media brokers, attorneys and broadcasters. “It's hard to identify a merger of this size that has gone through the HDO [hearing designation order] process and ultimately, reached from the merging parties perspective, a timely, favorable decision,” said FCC Commissioner Brendan Carr at a news conference Thursday.
“We are disappointed by this ALJ finding, which we believe to be erroneous,” said a Standard General spokesperson. “We remain committed to seeking all available avenues to both vindicate our rights, and promote the public interest which is best served through a full Commission vote to approve this transaction which any three Commissioners can request.”
Starks has been a vocal proponent of increasing ownership diversity -- Standard General Managing Partner Soohyung Kim is Korean -- but isn’t expected to split with Rosenworcel. Starks repeatedly declined to comment on the deal and is up for renomination to the FCC. The agency’s must-vote rules in the past required an item to sit unvoted for a period of time before a vote can be forced. The FCC’s Republicans have said the item should be voted by the full FCC. “We urge the FCC to act swiftly since in this matter a decision delayed is a decision denied,” Standard said.
Despite Standard’s appeal to commissioners, the transaction is expected to fall apart due to one of the parties deciding to leave before the May 22 final extension date. The FCC’s hearing process won’t be resolved by the extension date, and under the purchase agreement Tegna’s price goes up each day the transaction is unapproved. “Eventually, one of them is going to decide it is just not worthwhile,” said Patrick Communications Media Broker Larry Patrick, calling the hearing process “death by a thousand cuts.” As a publicly traded company, Tegna is likely to face the most pressure to exit the deal, Patrick said. Under the agreement, either company choosing to leave the deal early after the issuance of an HDO pockets a $136 million payout.
If the broadcasters push forward and the must-vote appeal doesn’t work, their likely only remaining avenue is the court system, and that's considered a long shot, numerous attorneys said. “The applicants' increasing desperation has been evident, so we can't predict their next move,” emailed Andrew Schwartzman, who represents deal opponents NewsGuild and the National Association of Broadcast Engineers and Technicians: “Whatever it is, we're ready.”
The broadcasters would likely seek a writ of mandamus from the U.S. Court of Appeals for the D.C. Circuit, which would compel the FCC to act on their application. They may also argue the court should consider the HDO an appealable final decision and overturn it: “The Media Bureau’s issuance of the HDO is a ‘final’ agency action masquerading under the guise of an interlocutory decision or ‘opportunity’ for due process,” said the final footnote in the broadcaster motion to certify.
Both strategies are thought unlikely to succeed, especially before the final extension date, multiple attorneys said. Writs of mandamus are usually granted only when a matter has sat for years, and the courts have historically viewed an HDO as an interlocutory decision. Parties are usually required to wait for a final decision at the FCC and then exhaust appeals at the agency before turning to the U.S. Court of Appeals for the D.C. Circuit, attorneys told us. “There’s a reason this has always been called a deal killer,” one attorney said. The courts aren’t known for quick action, and a ruling in the broadcasters’ favor would remand the case to the FCC to vote, likely meaning further delay.
Denial of the deal “was effectively predetermined by the fact that the abusive ALJ process was triggered in the first place,” said former FCC Commissioner Mike O’Rielly, a longtime critic of sending transactions to hearing. The ALJ process should either be done away with or fixed with “firm timelines,” the right to appeal an outcome, and clear guidelines for when it can be invoked, he said. Having staff kill the purchase is a “chicken way to regulate,” said Patrick. “This is wrong; this is the FCC ducking doing its job.” “Sending the transaction into the interminable black hole was done intentionally,” said O’Rielly.