Standard General-Tegna deal hangs by a thread after ALJ postpones review hearing

A recent move by an FCC Administrative Law Judge related to the Standard General-Tegna deal confirmed New Street Research analysts’ belief that the companies’ pursuit of the legal system to advance their transaction faced “very long odds” – but the firm thinks politics could still come into play to potentially push a full commission vote on the deal forward.

To be clear, analysts at New Street, led by Blair Levin, said their bottom line hasn’t changed in that it believes “the odds of success are very low” for approval of the deal, which would see Standard General acquire Tegna-owned stations and take the broadcaster private in an $8.6 billion deal. “But now we switch from watching legal proceedings to watching political reactions,” Levin wrote in a May 1 note to investors, referring to a speech on the Senate floor made by Democratic Senator Bob Menendez of New Jersey, which criticized the lack of a full FCC vote on the deal.

The speech came as the FCC ALJ appeared to dash any lingering hopes of a deal by postponing a hearing to review outstanding concerns “until further” – and specifically until after a May 22 deadline for financing the transaction passes.

Standard General in response urged the FCC for a vote. 

“As we have said for months, the FCC Media Bureau’s decision to designate the applications for hearing was a deliberate move to kill the transaction rather than to assist in making a decision," stated a Standard General when reached by Fierce. "At any point between now and May 22nd, the FCC has the ability to override the Media Bureau’s deeply flawed Hearing Designation Order and bring this deal to a vote. We urge the FCC to listen to the countless bipartisan voices calling for a vote and fair treatment of the applicants.”

The ALJ move was disclosed in April 27 FCC documents summarizing a meeting between the parties involved and FCC Enforcement Bureau. Standard General had separately filed petitions in D.C. seeking to appeal the FCC’s earlier designation hearing order (an action which sent the proceeding to the ALJ in a move that is already often seen as a deal killer in part because of the lengthy process) and speed up progress on the deal through the legal system but was denied by a federal appeals court on both of its petitions.

With the latest development, Levin noted the ALJ “shut the door on the legal efforts to overturn the FCC Media Bureau Hearing Designation Order (HDO)."

In FCC documents, the agency said that because the parties it had concluded materials already submitted by Standard General and Tegna weren’t enough to resolve all issues raised by the proposed deal, “at least some discovery is necessary.”

That process, along with other pre-hearing matters would likely push the duration of the hearing beyond the May 22 financing deadline that the applicants said they need to meet in order to conclude the transaction, the document noted.

“Rather than require Applicants, Petitioners, the Enforcement Bureau, and the Office of Administrative Law Judges to spend time and resources in furtherance of this hearing proceeding when the underlying transactions might not survive past May 22, 2023, the Presiding Judge determined it best to hold this proceeding in abeyance until sometime after the date has passed,” the FCC stated.

The applicants have been instructed to file a status report on or before June 1.

Still, while it looks like the postponement could be the final death knell to the deal, New Street said that Menendez’s speech opened a door, if only slightly. They noted Menendez’s speech complained about the lack of diversity among broadcast owners (Standard General has continuously promoted that the new Tegna would be the largest minority-owned, female-led TV station owner) while also dinging the FCC for not holding a full vote on the deal.

“He followed that by stating that the failure to vote will be a material factor in whether or not he votes for any nominee, calling into question whether he would vote for the reconfirmation of Commissioner Starks, whose term will expire this year,” wrote Levin.

Menendez’s speech offers a new possibility, Levin continued, in that Democratic Senators could put pressure on the commission’s two Democrats (Starks and Chairwoman Jessica Rosenworcel) to bring the item for a full vote to approve or deny the license transfer.

However, the firm still doesn’t think approval is a likely outcome.

“We don’t believe it will happen and even if it did, we think Starks would end up supporting the Chair’s position and the license transfer would still lack the necessary votes,” wrote Levin. “Still, we will be watching to see if Menendez’s comments gain traction among other Democratic Senators in a way that could lead to a full Commission vote."