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Nexstar CEO Perry Sook says a settlement of an antitrust lawsuit against its merger with Tegna is possible, but he notes the company faces less pressure than companies like Paramount facing legal opposition.“If we can settle the litigation prior to going to trial next year, that has a benefit to us,” he acknowledged on the company’s quarterly earnings call Thursday. “But we’re not necessarily under the same pressures that other people are in terms of drop-dead dates or ticking fees or whatever, because we’ve already closed on the acquisition.”
Sook appeared to be alluding to the Paramount-Warner Bros. Discovery merger, but he didn’t cite it by name. That far bigger transaction has also been waylaid, at least temporarily, by an antitrust suit. The legal quagmire could result in billions in self-imposed ticking fees being paid to WBD shareholders by Paramount, which also faces several ominous deadlines in the coming months for regulatory compliance and the deal’s completion.
Shortly before Nexstar closed its $6.2 billion Tegna acquisition last March, DirecTV and the attorneys general of several states filed a lawsuit seeking to block the merger. The suit says the combined station giant would have reach to 80% of U.S. households, well above the longtime 39% limit on the scale of stations controlled by a single owner.
A federal judge granted a preliminary injunction in the case, freezing the merger and imposing a “hold-separate” order. Nexstar has appealed the decision to the Ninth Circuit.
Sook saluted the FCC‘s decision Thursday morning to eliminate the cap on local TV station ownership, but said it will not have “a ton of effect” on the company’s defense against the lawsuit.
The disappearance of the ownership cap “will remove a certain level of uncertainty in future M&A,” Sook said of the FCC’s move. While the repeal will likely face a legal challenge, the exec added, “We believe that they are on very firm legal footing to make this declaration, and we support and applaud [FCC Chairman Brendan Carr] for his leadership in this issue, to allow broadcasting to compete on the same playing field in the domestic U.S. with every other purveyor of advertising, and every other purveyor of video that we compete with that has access to 100% of U.S. households.”
Despite the boost from the cap going away, Sook said the decision would have only “marginal benefit” to Nexstar’s defense in the Tegna suit. “It makes the unknown known from a regulatory perspective, but I don’t know that it will have a ton of effect as we go through our process. It’s more about antitrust than the national ownership cap.”
Prior to the call, Nexstar reported $2 billion in second-quarter revenue, slightly ahead of Wall Street’s expectations, with diluted earnings per share of $3.61. Despite the “hold-separate” order, Nexstar added Tegna’s results to its financial statements, with the April-to-June period the first full quarter reflecting the combined company. Sook noted that doing so will enable Nexstar to pay down debt using cash flow from Tegna stations even though it can’t legally combine the two station groups.
Sook said the new FCC rules on station ownership will involve case-by-case determinations of deal impact on station reach and market consolidation. While that system overall is seen as more favorable to stations, Sook said it could be a bumpy adjustment, at least initially.
“This new second layer of approval is something that I think all industry is going to have to grapple with,” he said.
While he didn’t specifically name the Paramount-Warner Bros. Discovery case brought by 12 state attorneys general, Sook appeared to point to that parallel antitrust action. Elected officials, he said, are “talking about investing and growing their antitrust legal team at the state level.”
The exec said his “fundamental question would be” whether such a push is “the best use of the taxpayers’ dollars and resources, given that you have a federal overlay that is charged specifically with looking at antitrust and public interest and those kinds of things. Seems the duplication of efforts to me.”
Numerous times on the call, as well as in its earnings release, Nexstar reaffirmed its confidence in ultimately prevailing in the matter.