A federal judge has paused Nexstar Media’s $6.2 billion merger with its local TV station competitor, Tegna, to allow a review of potential antitrust violations. Nexstar and Tegna argue they cannot fully adhere to the court’s temporary restraining order, stating that some merger-related actions are irreversible.
On Tuesday, Nexstar and Tegna filed a notice with the U.S. District Court for the Eastern District of California, informing the court that they are unable to implement certain parts of the TRO as specified, due to irreversible actions taken at the time of the merger’s completion.
According to the companies, the TRO is causing immediate operational challenges for Tegna and Nexstar, as well as regulatory issues and a governance void. They have requested the court to provide guidance on the required “clarifications and/or modifications” to the TRO.
Nexstar, the largest local TV station group in the U.S., announced on March 19 that the merger with Tegna was finalized after receiving FCC and Justice Department approvals. The combined entity would include 259 full-power TV stations (post-divestiture of six stations) affiliated with networks such as ABC, CBS, Fox, and NBC, reaching 80% of U.S. TV households.
However, just a day before the merger’s completion, DirecTV and eight state attorneys general filed lawsuits to block the merger on antitrust grounds. Judge Troy Nunley granted DirecTV’s request for a temporary restraining order, halting the integration of Nexstar and Tegna’s operations, citing potential antitrust law violations due to the combined firm’s market share. Nunley also ordered the lawsuits filed by DirecTV and the states to be merged into one action.
The companies stated that parts of their response to the TRO are redacted because they contain confidential business information that could harm Nexstar if disclosed.
Nexstar and Tegna asserted that the integration, which was already underway, cannot be easily frozen without causing disruption, unlike a traditional hold-separate order. They claimed that complying with parts of the TRO could endanger both Nexstar and the Tegna assets the court aims to preserve.
The companies expressed concerns about the impact on employee compensation and noted Nexstar’s ongoing SEC and debt agreement obligations, which require Tegna’s financial data to be included in Nexstar’s reports from the merger’s closing date.
They also pointed out that Tegna’s retransmission agreements with pay-TV providers, which include Nexstar stations, were replaced by Nexstar agreements upon closing. This creates a contradiction with the TRO’s requirement for separate management of Tegna, as Nexstar’s agreements now govern those stations.
Nexstar noted that the TRO’s announcement has led to confusion regarding the applicability of Nexstar’s agreements to Tegna stations. The company has started receiving inquiries from distributors, which they anticipate will increase as the billing cycle approaches, creating operational and accounting challenges.
The companies further argued that the FCC’s directives to Nexstar, which include divesting six stations, increasing news programming in specific markets, and offering extended retransmission consent agreements to certain pay-TV providers, conflict with the TRO’s demands.
Regarding staffing plans, Nexstar and Tegna highlighted Tegna’s planned $90 million-$100 million cost reduction initiative, which includes layoffs and operational consolidations. They indicated uncertainty about whether Tegna must implement or halt those plans under the current TRO.
Nexstar and Tegna have proposed nine clarifications and modifications to the TRO:
- Debt and Cash Management: The TRO should allow Nexstar to carry out regular cash management, intercompany transfers, and debt servicing, necessary for meeting Nexstar’s financial responsibilities. This includes allowing intercompany loans and cash management arrangements needed for TEGNA’s access to working capital and for debt servicing, along with completing the required post-closing security perfection process to avoid default on Nexstar’s debt.
- Corporate Governance and Operational Control: The TRO should permit Nexstar to conduct actions essential for TEGNA’s daily operations, such as authorizing routine financial transactions, without breaching the TRO’s restrictions on “influence.”
- Distribution Agreements and Retransmission: The TRO should allow the ongoing management of existing retransmission agreements and related payments, as well as necessary discussions on expiring contracts and fulfilling FCC Order commitments, without requiring the reversal of pre-closing contractual provisions.
- Corporate Governance Structure and Officer Authority: The TRO should enable Nexstar to establish a functional governance structure for TEGNA, including appointing officers as needed to comply with the TRO. Nexstar should not be deemed to exert “influence” by implementing Sarbanes-Oxley requirements, such as setting contract approval thresholds, expenditure authorizations, and financial limits in line with TEGNA’s pre-closing independent management.
- Financing and Reporting Obligations: The TRO should allow Nexstar to fulfill all obligations under its debt instruments, SEC reporting requirements, or refinancing activities, including working with TEGNA personnel as necessary. This includes completing necessary SEC and debt agreement reporting for the combined firm within deadlines, ensuring Nexstar management oversees the accuracy of TEGNA’s financial statements and compliance with internal controls, in collaboration with TEGNA.
- Management Authority and “Ordinary Course” Operations: The TRO should permit Nexstar to ensure TEGNA’s continued operations, including officer appointments, contract administration, and responding to third-party requests.
- Corporate Governance and Officer Authority: The TRO should allow Nexstar to appoint TEGNA officers as needed for TEGNA to maintain independent decision-making authority on retransmission matters.
- Employee Compensation and Workforce Decisions: The TRO should allow TEGNA to carry on with pre-existing, routine compensation and workforce actions, including merit-based salary adjustments and planned payroll actions before the merger.
- Interim Operating Covenants: To provide appropriate guidelines for TEGNA’s operations and limit its ability to make financial commitments beyond typical subsidiary obligations, the interim operating covenants outlined in the Merger Agreement should guide what actions TEGNA can take without Nexstar’s approval.
