Nexstar Skips Long-Term Earnings Forecast With Tegna Deal in Legal Limbo After DirecTV, State AG Challenge
Nexstar Media Group declined to provide a long-term earnings forecast to Wall Street on Thursday as its $6.2 billion Tegna merger sits in legal limbo following a challenge from DirecTV and a group of state attorneys general.
While the deal closed in March after receiving approval from the FCC and Department of Justice, a U.S. District judge put it on pause after siding with DirecTV and the state AGs that the deal could harm competition and violates antitrust laws. The judge subsequently issued a preliminary injunction requiring the two local station owners to continue operating separately while the case plays out in court.
“Given the current situation, operationally we’re in a bit of an unprecedented place right now with the court order until we can be heard by the appellate court, go to trial or settle the case,” Nexstar Chief Financial Officer Lee Ann Gilha said during the company’s first quarter earnings call. “Given the number of variables, I’m sure you’ll appreciate that for now, forward-looking guidance will be limited. We understand the market does not like uncertainty, so we’re going to do our best to keep you up to speed as much as we can, given the constraints placed upon us.”
She referred investors to look at Tegna’s public financial data and along with the longer-term projections in its proxy filing.
“We’re completely dialed in and focused on executing on the Nexstar plan and I think Tegna, similarly, is focused on executing their plan,” Gilha added. “We’re not going to be providing any sort of longer-term guidance with respect to either company at this point.”
Nexstar’s CEO Perry Sook confirmed that the company has filed an appeal before the Ninth Circuit Court of Appeals as the case heads to trial in the U.S. District Court for the Eastern District of California. The company has hired attorney Beth Wilkinson, who served as the NFL’s lead trial counsel in the Sunday Ticket antitrust case.
In addition, Sook said that there is a separate challenge to the FCC’s approval of the transaction pending before the DC Circuit Court, which has denied a request for an emergency stay finding it lacks jurisdiction. Nexstar and the FCC have been directed to file a response to the petition by May 11.
Despite industry consolidation, he argued that Nexstar still operates with a “fraction of their ubiquitous reach and financial resources,” prohibiting the company and others in its industry from “competing on a level playing field” with big tech and national media. He added that the Tegna deal is an “important step in solidifying our future and our ability to continue providing these valuable services to local communities across the United States.”
“We believe we will prevail on the merits of this case. We are confident in our arguments, expressed in detail in the FCC order approving the transaction, that a stronger, more financially resilient local broadcast industry is in the public’s best interest,” Sook told analysts. “We believe this is a fight worth having for us, for our industry and for the future of local journalism.”
Despite the freeze on the Tegna merger, the deal gave Nexstar incremental revenue of $106 million, which helped boost its total revenue 13.1% year over year to $1.4 billion during the quarter alongside higher advertising and distribution revenue from its legacy business units. Meanwhile, net income climbed 64.9% to $160 million, primarily driven by the Tegna acquisition and increased political ad revenue.
Shares of Nexstar climbed 4% following its quarterly earnings results.
Under the original terms of the deal, Nexstar would have had 265 television stations in 44 states and the District of Columbia, representing a reach of 80% of U.S. television households, adding Big-4 affiliate stations in Phoenix, Atlanta, Toledo and Portland. The combined company would have also had stations in nine of the top 10 markets, and in 41 of the top 50. In order to close the deal, Nexstar agreed to divest six stations across six different DMAs and made commitments to affordability and localism.
Its approval was also subject to raising or eliminating the 39% national TV ownership cap put in place by Congress in 2004 to protect viewpoint diversity, as well as prevent monopolization. However, instead of modifying the ownership rules, FCC Chairman Brendan Carr granted the companies a waiver and defended that the decision would empower broadcast TV stations and foster local journalism.
Though the FCC did not take action on the ownership cap, Sook said the industry is “still on a path to regulatory deregulation” and isn’t ruling out the possibility of FCC chairman Brendan Carr starting a proceeding to eliminate the national ownership cap.
“If you go back and look at public statements that [FCC chairman Brendan Carr] made since he was a commissioner, whether his party was in power or out of power, he has said these rules are antiquated relics of the past, and they need to go,” he said. “It’s not just as simple as putting out a press release and saying the rules have changed. There’s a lot of legal work that has to go into that, a lot of wordsmithing, a lot of consultation with advisors. So I would not suppose or presume that those actions are off track. It’s just, there’s obviously a lot going on, a lot of M&A in addition to ours that is under consideration at the FCC and the DOJ. So these things are moving through the pipeline, but I would not presume that they have stopped or will not move through the pipeline.”
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