Judge halts Nexstar/Tegna merger after FCC let firms exceed TV ownership limit

Although the Trump administration approved Nexstar Media Group’s $6.2 billion purchase of Tegna, a US judge has ordered the two companies to stop integrating their assets and operations. US District Judge Troy Nunley, an Obama appointee, issued a temporary restraining order on Friday prohibiting integration of the companies until further rulings by the court.

“Defendants must immediately cease all ongoing actions relating to integration and consolidation of Nexstar and Tegna,” wrote Nunley, the chief judge in US District Court for the Eastern District of California.

Nunley said he agrees with plaintiff DirecTV that immediate integration of the merging firms could eliminate competition, result in newsroom layoffs and shutdowns, and make it more difficult to divest Tegna stations if the court ends up requiring a divestiture after reviewing the merger. DirecTV has established that “the Nexstar-TEGNA merger will substantially lessen competition in markets in which it participates,” and that there would be irreparable harm if a restraining order isn’t issued, Nunley wrote.

While DirecTV filed the lawsuit in which the temporary restraining order was issued, the satellite TV provider isn’t the only party trying to unwind the merger. A coalition of advocacy groups sued the Federal Communications Commission in an attempt to reverse the merger approval, and the deal is being challenged by state attorneys general from California, Colorado, Connecticut, Illinois, New York, North Carolina, Oregon, and Virginia.

Although the temporary restraining order is good for only 14 days, it can be converted to a preliminary injunction that would remain in place during a trial to determine whether the merger violates anti-competition law. Temporary restraining orders and preliminary injunctions are governed by the same legal standards, and the judge ordered Nexstar to show cause for “why a preliminary injunction should not issue enjoining Defendants from further integration, consolidation, or joint management of Nexstar and the held-separate Tegna business unit.”

Trump FCC let firms exceed 39% TV ownership cap

DirecTV argues that the deal gives Nexstar additional bargaining leverage to demand higher retransmission consent fees from cable and satellite TV firms. Retransmission disputes frequently result in blackouts of broadcast stations on TV services.

“Plaintiff asserts Nexstar’s proposed merger with Tegna will drive up the cost of television service to tens of millions of Americans, shutter local newsrooms around the country, substantially reduce competition in dozens of local markets, and harm consumers,” Nunley wrote. Nexstar declined comment on the judge’s ruling when contacted by Ars today.

Nexstar took ownership of Tegna on March 19 after getting merger approvals from the FCC and Department of Justice, which both blessed the deal after President Trump said it would create “more competition against THE ENEMY, the Fake News National TV Networks.” The FCC granted Nexstar a waiver of the National Television Ownership Rule, which prohibits a commercial television licensee from having a cognizable interest in TV stations with an aggregate national audience reach above 39 percent of households.

Opponents of the FCC action said the agency exceeded its authority because the 39 percent ownership limit is set by Congress. Nexstar already reached 70 percent of US TV households but technically complied with the 39 percent rule because of the “UHF discount,” in which only half of the households reached by a UHF station are counted. After the merger, Nexstar reaches 80 percent of the US without the UHF discount and 54.5 percent with the UHF discount.

DirecTV’s lawsuit poses the separate question of whether the merger violates antitrust law and isn’t focused on the FCC’s ownership limit. But the number of stations owned by Nexstar, the largest owner of local TV stations in the country, is relevant to both the ownership limit and antitrust inquiries.

DirecTV alleges merger is illegal

Section 7 of the Clayton Act prohibits mergers that substantially lessen competition or create a monopoly. “The Supreme Court has found that a merger that creates a firm with a combined market share of 30 percent or more is presumed likely to violate the antitrust laws,” Nunley wrote.

DirecTV provided evidence that the Nexstar/Tegna merger results in at least 30 percent market share in 31 local markets and over 50 percent market share in 16 of those markets, Nunley wrote. The combined firm owns two or three of the Big Four affiliate stations in numerous markets.

“Defendants also do not contest Plaintiff’s assertion that in the 16 [market areas] in which Nexstar or Tegna has a Big Four duopoly or triopoly, they appoint a single news director to oversee a single newsroom and use the same on-air talent for all Big Four channels they own in the [market area],” Nunley wrote.

The pre-merger Nexstar owned 201 full-power TV stations and Tegna owned 64, for a total of 265. They agreed to divest six stations, which would eventually reduce the total to 259.

DirecTV argues that “absent a hold-separate order, Nexstar will fully absorb Tegna and eliminate the companies’ head-to-head competition in the 31 overlap markets,” Nunley wrote. “Plaintiff asserts it will suffer irreparable harm from significantly diminished bargaining power vis-à-vis Nexstar in retransmission consent negotiations. Plaintiff contends it will soon find itself negotiating for access to highly sought after content, including Big Four sports and local news broadcasts, with a merged firm that intends to threaten blackouts doubling or even tripling their present danger.”

Judge: Nexstar can’t swallow up Tegna yet

Nunley decided that DirecTV’s Clayton Act claim is likely to succeed on the merits and that “the public interest favors a hold-separate order.” The hold-separate order has numerous components aimed at preventing Nexstar and Tegna from integrating assets or making decisions together.

“Nexstar must permit Tegna to continue operating as a separate and distinct, independently managed business unit from Nexstar, and Nexstar must put measures in place to maintain Tegna as an ongoing, economically viable, and active competitor,” Nunley wrote. “Tegna shall have separate management that operates Tegna in the ordinary course consistent with pre-closing practices.”

One provision in the order requires that Tegna leadership maintain control over decision-making “with respect to retransmission consent agreements and negotiations, newsroom personnel, operations and programming, product and service offerings, product development, advertisement sales, and personnel.”

Another provision says that all local TV stations owned by Tegna “will be maintained and operated as independent, ongoing, economically viable, and active competitors in the business of licensing retransmission consent” to TV providers. A provision aimed at preventing layoffs says the firms “shall use all reasonable efforts to maintain” Tegna stations’ pre-merger staff levels.

Nexstar has until April 1 to submit an argument as to why it should not face a preliminary injunction, and a hearing is scheduled for April 7 to discuss the potential preliminary injunction. The judge also ordered Nexstar to submit a report by April 6 detailing steps it has taken to comply with the temporary restraining order.