10-Month Quiet Period Squashed Station Dealmaking
The FCC incentive auction “quiet period” has stretched on 10 months, longer than most TV broadcasters expected, squashing dealmaking and making it difficult for lawyers to serve their clients, broadcast attorneys said in interviews last week. With the auction widely forecast to stretch into 2017, some broadcast industry officials are seeking relief. The quiet period was expected to make dealmaking difficult (see 1411280041). The Incentive Auction Task Force said it will consider ending the communications prohibitions after the auction's final stage rule has been satisfied to give broadcasters more time for the repacking. It's the dampening effect on transactions that's the real difficulty of the quiet period, said broadcast attorneys and BIA/Kelsey Chief Economist Mark Fratrik.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
That dampening effect is enhanced by the auction rules barring deals from being consummated mid-auction, said some. “This has real-world impacts,” said Fratrik. “There should be some accommodation to allow transactions.” The anticollusion rules were discussed Thursday at an off-the-record FCBA Mass Media and Transactional committees event, where Fratrik was among the speakers.
The year 2013 was a big one for deals, with 335 full-power and Class A stations changing hands for $9.8 billion, possibly driven by the then-upcoming auction, Fratrik said. In 2014, 213 stations sold for $4.6 billion, and in 2015 -- with the auction seen as around the corner -- there were 114 stations sold for $1.2 billion. The quiet period started in January 2016, and Nexstar's proposed $4.6 billion buy of Media General was announced shortly after, indicating that deal was largely negotiated before the prohibited communications rules were in effect, Fratrik said. If Nexstar/Media General is discounted, there have been deal announcements for only 20 stations sold since the quiet period began, for $667 million, Fratrik said. Eleven stations and $545 million of that are spinoffs from the Nexstar transaction, Fratrik said. “The transaction marketplace has basically been halted during the quiet period.” Nexstar and Media General have sought a waiver to complete their deal before the auction ends (see 1609220035).
Problems caused by inability to make deals are far reaching, Fratrik and broadcast attorneys told us. The stations also forgo the cost savings and economies of scale from those combinations, Fratrik said. Interest rates are also seen as likely to rise next year due to actions of the Federal Reserve, which means deals postponed until after the auction will cost the buyers more than they otherwise would have.
Some station owners may need to unload their outlets for financial or other reasons, but can't, one broadcast attorney said. The prohibited communications rules forced station owners that need to liquidate their stations to try to make deals with buyers that aren't otherwise in the TV business, which makes it difficult to get a station's real value, the expert said. With the auction looking less like an easy windfall for broadcasters, station owners that had resigned themselves to leaving the business are now seeking other ways to unload their stations, but the auction has limited their choices, the attorney said.
The quiet period also limits some of the ways lawyers can help clients, said Wiley Rein's Ari Meltzer. Though larger law firms have been able to sequester some attorneys from auction information and thus continue to operate close to normal, smaller firms don't have that option and have to avoid clients' auction questions, Meltzer said.
Fletcher Heald's Peter Tannenwald wants the FCC to act to relax the rules as soon as possible and is seeking attorneys or others to join with him in lobbying the FCC. He believes it can be demonstrated that bidding information about what occurred during the reverse auction phase of Stage 1 of the incentive auction is no longer valuable to bidders still in the auction in Stage 3, and the FCC should relax communications prohibitions for broadcasters eliminated in that round. Tannenwald conceded it could be difficult to get the FCC to agree to relax those rules before the auction is complete. The agency's stated interest in relaxing the prohibited communications rules once the final stage rule is satisfied is a more likely proposition, one broadcast attorney said, though he conceded that would likely only buy broadcasters a month or two.
If the communications prohibitions didn't exist, it's not clear how broadcasters could collude in the auction, Fratrik said. The structure of the rules for broadcasters seems borrowed from the more frequently used rules for wireless carriers, he said. Wireless auctions typically have a small fraction of the number of entities involved in the reverse auction, and function entirely differently. It's hard to see how knowing another broadcaster’s bidding plans could be used to help another station, Melzer said.