Shares of Nexstar fell over 8% during Monday’s trading session after a judge put its $6.2 billion merger with rival Tegna on pause.
The move comes as DirecTV and state attorneys general are suing to block the merger, arguing that it would violate antitrust laws by driving up costs for consumers, reduce competition and increase the frequency and duration of blackouts of key local teams and network programming.
On Friday, U.S. District Judge Troy L. Nunley granted DirecTV’s request for the deal to be paused, noting that Nexstar and Tegna “do not contest this merger will increase Nexstar’s bargaining leverage to extract higher fees.” The judge also stated that he was convinced by DirecTV’s “assertion that despite defendants’ claim the rise of streaming services and ‘cord-cutting’ will create a downward pressure on retransmission rates, Nexstar’s CEO Perry Sook recently told investors the opposite.”
The judge set an April 7 hearing to decide whether the deal violates antitrust law and will require a preliminary injunction to stop it.
The deal gives Nexstar 265 television stations in 44 states and the District of Columbia, representing 80% of U.S. television households, adding Big-4 affiliate stations in Phoenix, Atlanta, Toledo and Portland. The combined company will also have stations in nine of the top 10 markets, and in 41 of the top 50.
Its approval was 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.
Additionally, Nexstar agreed to divest six stations across six different DMAs and agreed to make commitments to affordability and localism, helping close the deal.
“The D.C. Circuit has already determined that the relevant media ownership regulation is an agency rule, not a firm statutory limit, and the full Commission has reached the same determination on multiple occasions,” Carr said at the time. “Waiving that rule here is consistent with longstanding FCC authorities and doing so promotes the underlying purpose of the FCC’s media regulations by promoting competition, localism and diversity.”
Citigroup analyst Jason Bazinet expects the temporary restraining order could lead to a a preliminary injunction and cause Nexstar to divest some TV stations that could lower the deal’s estimated synergies from $300 million to roughly $240 million.
However, the firm ultimately expects that the transaction will still close, though it could be delayed until 2027.
“While station divestitures may not be Nexstar’s preferred path, we don’t think the magnitude of potential synergy reduction is large enough to scuttle the transaction,” Bazinet said.
Shares of Nexstar have fallen 14.7% in the past five days, 21.4% in the past month and 7% year to date.
