Nexstar stock fell 11% as Monday’s trading day neared its end, reflecting investor angst over a federal judge’s decision temporarily blocking the company’s merger with Tegna.
The drop is a stunner for the shares, which have been among the steadiest in the media sector. Over the past five years, they have risen by 94%.
In issuing a temporary restraining order, U.S. District Judge Troy Nunley sided with DirecTV, which is seeking to block the merger on the claim that it violates antitrust laws. A group of states, including California and New York, also are seeking to sideline the transaction.
The $6.2 billion deal is not merely the biggest local TV merger in history. It sets a key precedent by using a waiver from the FCC, enabling the combined company to own stations reaching about 80% of the U.S. Federal rules cap ownership at 39%.
Nunley has scheduled a hearing for April 7. The concern among many investors is that the ruling could be the start of a lengthy delay to the process. Nexstar issued a press release declaring the deal closed just minutes after the FCC gave its approval. The FCC is requiring Nexstar to divest of six stations.
In a note to clients Monday, New Street Research policy adviser Blair Levin said the ruling could mean that Nexstar is “likely to be stuck in deal purgatory for the next several years.” If the case were to end up being brought before the U.S. Supreme Court, the advisor said the court is not guaranteed to be willing to hear it, and if they do it might not be until the 2028-29 session. As the process grinds on, Levin wrote, Nexstar shareholders “carry all the risk,” while Tegna shareholders “have been paid off.”
In his order, Nunley wrote that DirecTV established “a likelihood of success on the merits” on its claim, and that moving forward with the transaction would create “irreparable harm.” Those are two key factors courts weigh in issuing TROs, after which a judge gives a fuller consideration as the legal process plays out. In ordering at least a temporary halt to the merger, the judge wrote that the “private benefits Nexstar could obtain by acquiring Tegna are outweighed by the harm to” DirecTV.
FCC Chairman Brendan Carr has seemingly relished using the FCC’s threat of regulatory action against national networks, and even boasted at the Conservative Political Action Conference last week that Trump was “winning” his war on the media. That said, actual FCC regulatory action on news and entertainment content, which Carr has not taken, may not withstand judicial scrutiny given the First Amendment.
The FCC chairman sees a bulked-up Nexstar as a counter to the leverage that networks have over local broadcasters, and he has dismissed concerns that its merger with Tegna would only create another media giant that has outsized influence on the viewing public.
Carr’s comments, which have been intensifying in recent months, could potentially wind up a legal liability, Levin cautions, and raise broader questions about other local TV deals that could follow given the de facto easing of the ownership cap.
“This case will help clarify the antitrust limits of broadcast consolidation, which are more likely to be relevant to investors than the political limits that Chairman Carr would impose,” he wrote. “That is, as investors contemplate what deals would be allowed, there is the political screen at the FCC and the antitrust screen in the courts.