Broadcast Deals Aren't Reaction to Incentive Auction
Broadcast deals are happening in the shadow of the looming incentive auction, but they aren't a reaction to it, broadcasters, attorneys and analysts told us. Deals such as Gray/Schurz (see 1510010020) involve stations and groups that mostly won't be participating, while other transactions -- such as the ongoing dance among Nexstar, Media General and Meredith (see 1510150071) -- stem from discussions that started before the auction was so imminent, analysts and broadcasters told us. The auction and its accompanying communication prohibitions and repacking add some risk and complications to transactions happening now, the experts said.
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Yet the auction doesn't change the business reasons that make broadcasters staying in the business want to get bigger, said experts. “In the face of distributors scaling up, it is almost imperative that broadcasters try to protect themselves by doing the same,” said Guggenheim Partners analyst Paul Gallant.
“Industry forces” such as growing multichannel video programming distributors provide a reason for broadcasters that have the resources to get bigger, even with the question mark represented by the auction, said BIA/Kelsey Chief Economist Mark Fratrik. Companies with “the powder in the keg” are acting when they see good prices, Fratrik said, pointing to Nexstar's overtures to Media General as an example.
Gray/Schurz mostly involves No. 1 stations in their markets that were never likely to give up their spectrum, said Gray Senior Vice President-Business Affairs Kevin Latek. Gray has long maintained that it doesn't intend to participate in the incentive auction, so it's not a factor in the transaction, Latek said.
Though broadcast attorneys told us earlier this year that the communications prohibitions in the auction's anti-collusion rules could put a damper on mergers and acquisitions, recent guidance from the commission on those rules has clarified that issue, said broadcast attorney Jack Goodman. The guidance contains allowances for broadcasters that have an ongoing transaction on file with the FCC by the Dec. 18 short-form auction application deadline (see 1510160065). That deadline is the trigger for the auction's communication prohibitions. Broadcast deals close to being completed could be accelerated to make that deadline, several broadcast attorneys and analysts suggested.
However, the communications prohibition wouldn't affect deals involving stations that aren't participating in the auction, Latek said. Since he believes any deals taking place in the next few months will likely fit that description, the communication prohibition may not be much of a factor in M&A, he said.
Though the recent spate of deals makes broadcast M&A seem active, those deals stand out because few transactions are occurring otherwise, analysts and broadcasters said. The release of opening bid prices has many broadcasters considering their prospects in the auction rather than looking to potential buyers, Latek said.
One way the auction does affect broadcast dealmaking is through the repacking, broadcasters told us. Since the whole band is being repacked, the station contours and interference levels a buyer sees today may not be what they end up with post repacking, broadcast attorneys said. But to companies looking to make deals, the repacking is an acceptable business risk, Latek said. Stations can also change in value when industries leave their area or high-population military bases close, he said. Broadcasters are factoring that sort of concern into their dealmaking, he said. The risk of getting moved around in the repacking also increases the closer a station is to a large market, making that concern less of a factor for Gray, which owns mostly smaller market stations, he said.