Nexstar Says Federal Judge’s Freezing Of Tegna Merger “Degrades The Very Assets It Purports To Protect”
Nexstar has fired back at a lawsuit filed by DirecTV and attorneys general of several states aiming to derail the local TV giant’s $6.2 billion merger with rival Tegna. In a request for an expedited appeal filed with the Ninth Circuit on Wednesday evening, the company calle…
Nexstar has fired back at a lawsuit filed by DirecTV and attorneys general of several states aiming to derail the local TV giant’s $6.2 billion merger with rival Tegna.
In a request for an expedited appeal filed with the Ninth Circuit on Wednesday evening, the company called a federal judge’s preliminary injunction in April that froze the deal a “straightjacket” that “risks profound harms” to Tegna. A legal process unfolding over several months “locks Tegna stations into an outdated structure that was already under substantial strain, making it more likely Tegna will not survive while waiting for the transaction to be vindicated.”
In a companion brief filed with the request for a sped-up appeal, Nexstar derided the U.S. District Court’s ruling as a massive overreach. It affects “stations, operations, and corporate functions that have nothing to do with plaintiffs’ alleged harms,” the brief said. “This Court should narrow the preliminary injunction to match the law and what plaintiffs actually allege. Plaintiffs fell far short of their burden for the extraordinary relief of a preliminary injunction of any kind, let alone one this sweeping.”
At trial, Nexstar goes on to assert, “the full evidentiary record will defeat plaintiffs’ claims. But Defendants cannot wait for trial to challenge the scope of the injunction. With each passing day, the injunction’s unnecessary breadth inflicts unrecoverable harm. Worse still, it degrades the very assets it purports to protect.”
In an extraordinary series of events earlier this year, Nexstar announced the close of the merger in March, mere minutes after the FCC approved it. The Department of Justice had also given its OK. The integration of the two companies began, but then was abruptly halted when a federal judge issued the injunction and issued a “hold-separate” order. Nexstar has appealed the case to the Ninth Circuit, but in its latest court filing has asked for the appellate court to expedite the suit and begin oral arguments as soon as August.
The lawsuit calls the deal anticompetitive and anti-consumer, in part because it would give the combined company undue leverage in carriage negotiations, and higher retransmission fees would likely result. The consolidation of local news under one corporate roof will also lead to diminished coverage, the suit further contends. Nexstar has pushed back on both claims, and its brief on Wednesday argued that the judge’s order unduly affects “business segments unrelated to retransmission consent or local news.” It also impairs “critical corporate functions – such as finance, accounting, and IT – far afield from retransmission-consent negotiation or decisions regarding the production of local news.”
The merger is noteworthy for many reasons, including its precedent-setting creation of a local TV behemoth reaching 80% of U.S. households. The current federal limit on the footprint of a single station owner is 39%. The FCC says lifting or easing the cap is within its jurisdiction, but Democratic FCC commissioner Anna Gomez and other lawmakers have insisted that only Congress has the power to adjust the rule. Many broadcasters, not just Nexstar, have voiced objections to the cap in recent years, saying it was conceived of in a world before streaming and social media and unfairly harms their ability to compete with Big Tech.
In addition, President Trump and his appointee to lead the FCC, Brendan Carr, have championed the merger. It is one of several mergers indicative of a more laissez-faire approach to M&A by Trump’s administration. But observers on Wall Street, Washington and the media industry are watching the situation closely, with some seeing the traction gained by opponents to Nexstar-Tegna potentially helping opposition to the much larger Paramount-Warner Bros. Discovery combination.
On Nexstar’s quarterly earnings call this month, the status of the appeal and the lower court defeat consumed much of the attention of Wall Street analysts. In an appearance at last month’s NAB Show, Nexstar CEO Perry Sook acknowledged that the legal process is likely to require several months to be resolved, with the cost savings and efficiencies cheered by investors on hold during that period. A separate challenge to the merger by conservative news outlet Newsmax, run by Trump ally Chris Ruddy, and several broadband industry associations is also now before the D.C. Circuit Court.
Veteran Citi media analyst Jason Bazinet marveled on the earnings call that he had “never really come across a situation where shareholders own an asset and can’t manage it.” Sook insisted that Nexstar is “very comfortable” with the way Tegna had operated as a subsidiary from the time the deal was first proposed last summer, though the legal briefs tell a much more dire story.
During his NAB appearance, Sook offered a stark view of the local TV landscape, saying it is “a matter of time” before only “two or three” operators of stations are left standing given the intense pressure on the pay-TV bundle and linear viewing. That existential urgency is a large part of the justification for the merger and the doubling of prior ownership limits, Nexstar has argued.
