Breakingviews: Minnow TV deal highlights regulatory sharks

Antitrust crackdowns make it hard for buyers and sellers to get on the same frequency. Tegna, which operates broadcast television stations throughout the United States, has agreed to sell to hedge fund Standard General. The agreement includes tight protections for the seller, a reflection of just how difficult the merger environment has become.

Broadcast deals contend with a byzantine regulatory rule book set up when rabbit ears on television sets were the main way people got their news and entertainment. For instance, no broadcast group is allowed to reach more than 39% of the population or control too many stations in a local market, despite more people now consuming news online. Investors in broadcast companies are tightly monitored, with foreign companies or owners of other broadcast assets facing restrictions.

By the letter of the rules, Tegna’s deal appears to pass muster. Unlike some prior mergers, this transaction doesn’t rely on workarounds that have been controversial. The financing does include an investment by Apollo Global Management, which owns fellow broadcaster Cox Media. But the private equity giant won’t receive voting equity and its stake sits below the threshold that the Federal Communications Commission considers problematic.

Nonetheless, broadcast deals that fit within the rules frequently take a long time to achieve final approval, and the FCC is constantly rewriting the rule book. So Tegna has built-in protection. If the deal takes more than nine months to close, the price goes up five cents per share per month. If it takes longer than 12 months, that increases to 7.5 cents; longer than 13 months, to 10 cents; and longer than 14 months, to 12.5 cents.

It’s a nominal fee relative to the $24-a-share price, but punitive nonetheless. And sellers of all stripes are setting up steeper protections. Activision Blizzard’s $69 billion deal with Microsoft has a termination fee that steps up over time to reach $3 billion, a proportionately high number relative to past deals. Unusual moves by antitrust agencies have led to merger agreement quirks elsewhere, like in pharmaceutical deals. 

As competition cops crack down ever harder, even deals designed to fit the rule book require more protection. And, as Tegna shows, even once regulators move on to focusing on other industries, the risk remains.

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