divestiture trust

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Sometimes the FCC decisions come out in a flurry, often with little nuggets of importance in each one.  Rather than trying to write about each one, we’ll from time to time, just try to highlight those nuggets for your consideration.  At the end of last week, three decisions came out with just such nuggets – all dealing with different issues.  The first case involved the issue of divestiture trusts – trusts set up to hold broadcast assets when a buyer of broadcast properties, usually in connection with the acquisition of a broadcast group, needs to divest some stations so that the buyer remains in compliance with the multiple ownership rules (usually in radio where the attribution of LMAs and JSAs make impossible divestitures like those used in television, to parties with no connection to the buyer but operating with a Shared Services or Joint Sales agreement).  In the past, the FCC has not put any limit on how long the stations could remain in a divestiture trust, with some stations spending 5 or 6 years (or longer) in such trusts before they are finally sold.  This case involved an acquisition of a large number of radio stations by Townsquare Media from Cumulus.  Here, the Commission established a two year limit on period of time that the trust could hold the stations placed in its care.  Thus, the trustee needs to divest of those stations within that period.  We would not be surprised to see that limit imposed on any trusts created in the future – perhaps even on some longstanding trusts still in place when they are subject to renewal applications, where such trusts have been challenged from time to time.

In TV, often stations that cannot be owned by a broadcaster who is buying another station in the same market consistent with the multiple ownership rules are not sold through a trust, but instead they are sometime bought by an independent party who can support the station through some sort of Joint Sales or Shared Services Agreements with the buyer.  In one of those cases, the continuation of an existing Shared Services Agreement was challenged in connection with the sale of the brokering station held by Young Broadcasting to Media General.  The FCC again (as they have in many cases before, see for instance our article here), held that the sale was permissible and that the SSA could continue after the sale.  The brokering station did supply news to the brokered station, but it was under 15% of the program time, and thus not attributable.  The brokered station continued to have a financial incentive to operate the station successfully, keeping 70% of the cash flow of the station.  And the mere fact that the owner of the brokering station guaranteed the debt of the brokered station did not make that interest attributable to the broker.  Note, however, that the Commission did question the staffing of the brokered station but, as that station was not being transferred as part of the sale before the FCC, the Commission said that they would review that issue in connection with the license renewal of the brokered station.  Shared Service Agreements are also under consideration in the current Quadrennial review of the FCC’s multiple ownership rules (see our stories here and here ).  So some of these issues may be revisited again in the not too distant future, when the new FCC Chair decides to complete that review.
Continue Reading Odds and Ends – Divestiture Trusts, Shared Services Agreements and Determinations of Significantly Viewed Stations

When one broadcast licensee company buys another, or when there is a restructuring of a company with broadcast ownership holdings that are grandfathered under current ownership rules, there often arises a need to divest stations so that the buyer (or the new controlling parties after a restructuring) complies with the multiple ownership rules after the completion of the transaction.  Often, selling the non-compliant stations quickly so as to not unduly delay the closing of the purchase or the restructuring is difficult, as it takes time to locate a buyer for the "extra" stations and to negotiate a fair sales price.  In fact, a forced divestiture can artificially depress the sales price for the non-compliant stations that need to be spun off, as potential purchasers of the stations know that any delay of the principal transaction will impose costs on the buyer and seller in that deal.  Thus, the parties in the principal transactions often look for ways to avoid a forced sale at a depressed price.  One method is the use of a divestiture trust – letting a trustee run the stations to be divested until a suitable purchaser can be found at a reasonable price.  The FCC has permitted such trusts, but in a case decided last week, it demonstrated that there were limits on their use by denying applications that the Commission deemed interests in too many stations in one area in the hands of one company.  This case should provide guidance on the limits of the use of divestiture trusts for those who may consider them in future broadcast transactions.

The case involved radio stations in two smaller markets in Washington state, Yakima and the Tri-Cities. There, new Northwest Broadcasting had held full complements of stations, at or close to the ownership limits in each market.  New Northwest went into bankruptcy, and a receiver was appointed to run the stations.  The receiver reached a deal to sell the stations to Townsquare Media, which already held clusters of stations in these markets, also at or near the ownership limits in the markets.  Townsquare proposed to cherrypick from the New Northwest cluster a few prime stations, and then to assign the remainder (and a few stations that Townsquare had itself owned) to a divestiture trust, with instructions to sell off these stations to an independent buyer.  While the FCC decision does not explicitly set forth the terms of the trust, it appears that the beneficial interest in the sales price of the stations to be divested (and presumably any operating profit until the stations were sold) would be for the benefit of Townsquare.  In looking at this proposed transaction, the FCC’s Media Bureau determined that the proposal to use this trust would concentrate a beneficial  interest in too many radio stations in the hands of one company.  Thus, the applications were dismissed.Continue Reading FCC Sets Limits on Use of Divestiture Trusts When Station Purchase Would Put Buyer in Violation of Multiple Ownership Rules