Standard General is getting an accelerated proceeding from the DC Court of Appeals after filing a lawsuit against the FCC that in part seeks to overturn the commission’s move to send the firm’s proposed acquisition of broadcaster Tegna to an administrative law judge for further review.
Standard General is seeking to acquire broadcaster Tegna under a multi-billion deal that was announced in February 2022. Tegna owns 64 TV stations in 51 U.S. markets. This week Standard General filed a lawsuit in the DC Court of Appeals against an FCC designation hearing order and sought an expedited timetable.
In its appeal, Standard General claims the FCC’s designation hearing order to an ALJ effectively denied its applications to transfer station licenses, and asks the DC court to treat it as such and reverse the order. At the same time Standard General filed a motion that asks, to the extent the court decides that the Commission’s order doesn’t yet constitute final action on the applications, that it find the FCC action unlawful and direct the Commission to grant the licenses before May 22, which is the expiration deadline for the deal’s financing. Analysts at New Street Research noted the court on Tuesday issued an order that effectively speeds up the process, requiring the FCC and supporters of its action to file a brief by 5 p.m. Wednesday, March 29, and for Standard General to file a reply by noon on Thursday, March 30.
Initially Standard expected the deal to close in the second half of 2022, but the review has turned into a lengthy process stretching over a year. While the Department of Justice in February allowed a deadline to pass without challenging the deal, the FCC’s Media Bureau last month decided to send the transaction to an administrative law judge hearing to review concerns – an often lengthy undertaking that’s previously been seen as a deal killer. Standard General is eager to complete the deal as it’s up against the May 22 financing deadline, which it’s unlikely to meet if it awaits the outcome of an ALJ hearing.
In announcing the lawsuit, Standard General called the FCC’s move an “unprecedented and legally improper maneuver,” arguing it didn’t give the company a chance to engage with the Media Bureau to address the questions and that the hearing order was based on grounds that the Commission can’t lawfully consider (specifically potential for increased retrans fees and station employee layoffs).
The main issues identified by the FCC for ALJ review relate to concerns the deal might increase retransmission consent fees and result in newsroom layoffs. In addition to claiming that’s outside the FCC’s purview, Standard General previously committed to keep current fees and staffing levels in place, and also offered a 20% increase to local news budgets, among other concessions. It also argued that the transaction is in the public interest and points out that it would create the largest minority-owned and female-led broadcasting company in U.S. history. Standard General called the FCC’s treatment of the acquisition “unprecedented” and claims that the Media Bureau never expressed any concerns with the transaction during its year-long review.
Standard General also pointed to a lengthy fact-finding ALJ hearing as something that would drag on and ultimately put an end to the case, while noting that rejecting the deal would cost current Tegna shareholders more than $2 billion.
“If this decision is not reversed, it will guarantee that Standard General will never get a full-Commission up-or-down decision on its applications in time; over the past 30 years, the average such hearing has taken over two years, and no hearing has concluded in less than 300 days,” Standard General stated. “The deal will be dead before the hearing even gets off the ground. Obtaining a positive ruling from an administrative law judge a year or two from now will be far too late.”
Standard General claims the FCC is “has tried to dodge” the agency’s task of serving the public interest in a transparent manner “by utilizing its Media Bureau to order a hearing that will effectively kill the deal without a formal denial.”
The company went on to say it won’t let that stand.
“It will continue to pursue every avenue—including doing everything in its power to work with the FCC to timely resolve this matter—both in and out of the courtroom,” Standard General stated, adding that at any time FCC Commissioners can demand a vote.
Still, prospects for the deal aren’t exactly rosy.
New Street analyst Blair Levin said that while the brief paints “an interesting picture of the various ways in which the FCC process to date upended various norms” the firm continues to believe “the prospects for SG prevailing are low.”
In a note to investors Levin wrote that the relief Standard General seeks, including effectively rejecting the FCC’s ability to send the license transfer review to an ALJ, “also upends traditional practice.”
“We don’t think the Court is likely, particularly in this accelerated timetable on a matter that has received relatively little attention among policy makers and in the media, to take steps required to enable SG to close by May 22,” wrote Levin. Still, the analyst firm noted it could be wrong “as any two judges in the Court of Appeals might see this as an opportunity to limit administrative agency power, something conservative judges have shown interest in doing.”
The analyst said New Street will be watching to see how the judge responds to the FCC and Standard General briefs to determine whether the accelerated process was meant to get the issues Standard General outlined before a judicial panel, which would be a positive for the Tegna deal, or on the other hand designed to speed up the conclusion of the process.