Gannett/Belo May Need FCC Waivers, Attorneys Say

Gannett and Belo may have to get FCC waivers to get approval for their deal (CD June 14 p7), said several communications attorneys in interviews Friday. The companies have market overlaps in five cities, their executives said on a conference call with investors Thursday. In Louisville, Ky., and Phoenix, Gannett would be acquiring Belo TV stations in markets where it already owns newspapers, which would put the merger squarely afoul of FCC cross-ownership rules, noted lawyers who both back consolidation generally and those opposed to it. “They're taking a very aggressive approach that is very likely to spark a challenge,” said public interest lawyer Andrew Schwartzman, who has represented Free Press in the FCC’s media-ownership review.

Schwartzman said the timing of Gannett/Belo might be bad for the companies, since the FCC is looking at cross-ownership rules. Gannett has said it might use shared service agreements (SSAs) -- where another company would run the station but share services with Gannett -- to make the deal comply with FCC rules. Schwartzman said there have been “rumblings” from the FCC about cracking down on SSAs. He said a market overlap with Belo in Phoenix, where Gannett had sought and received a waiver from the FCC allowing it to own both a TV station and a paper, “is particularly troublesome.” Gannett and Media Bureau spokespeople declined to comment.

Gannett and Belo may expect to be forced to seek a waiver or divest themselves of one of their stations, said a broadcast attorney not part of the deal. Companies in a deal view the FCC approval process as more of a negotiation, and may be using the SSA plan as an initial bargaining position, with the expectation that they may be required to make concessions, said the lawyer. Wilkinson Barker broadcast attorney David Oxenford disagrees. Oxenford, also not part of the deal, pointed to previous situations where SSAs were used similarly, such as between Raycomm and MCG Capital in Hawaii (CD Nov 28/11 p4). Oxenford said “virtually every large television company” uses SSAs to stay technically in compliance with FCC ownership rules.

SNL Kagan Senior Analyst Robin Flynn doesn’t believe Gannett and Belo would have pursued the deal without “investigating fully” the chances the commission would reject their SSA plans or not grandfather them in on a subsequent rulemaking, she said. “Gannett has good lawyers,” agreed Schwartzman. “In the history of consolidation at the FCC, broadcasters have tended to get away with such tactics.”

Schwartzman said the two companies may not have bargained on the changing makeup of the FCC. “It’s not clear to me that the new leadership at the FCC will be as willing to go along with this,” he said of acting Chairwoman Mignon Clyburn and Chairman nominee Tom Wheeler. “I think it’s quite possible they'll [Gannett and Belo] have a harder time,” said Schwartzman.