Nexstar-Tegna Merger Gets Positive Reaction from Wall Street and Local TV Competitors: What Does This Mean for Future Deals?
Wall Street is reacting positively to Nexstar’s recent $6.2 billion acquisition of local TV competitor Tegna, which is expected to usher in a new wave of consolidation across the industry. This optimistic sentiment extends to Nexstar’s competitors as well.
On Thursday evening, Nexstar confirmed the completion of the merger, shortly after both the Federal Communications Commission (FCC) and the Department of Justice (DOJ) granted their approvals.
However, legal hurdles persist. Several state attorneys general and major pay-TV provider DirecTV have launched lawsuits aimed at blocking the merger. Just a day later, the state AGs filed an emergency motion for a temporary restraining order, while others are contemplating legal action regarding the swift regulatory review process, which lasted just four months without a full commission vote at the FCC.
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Investors have shown their approval as well, with Nexstar’s shares rising by 2%. Additionally, stocks of significant station owners like Gray Media and E.W. Scripps experienced a 3% increase on Friday. Shares of Sinclair, the second-largest station operator, remained unaffected despite past attempts to acquire Scripps and ongoing strategic asset reviews.
In contrast to other media mergers, such as Paramount’s acquisition of Warner Bros. Discovery, the Nexstar-Tegna deal is not viewed with skepticism by other local station owners. The FCC’s approval included a waiver allowing the merged entity to surpass the 39% national ownership cap. While the new combined ownership footprint will be somewhat reduced from the proposed 80% following the divestiture of six stations, it remains unprecedented.
The favorable perspective toward lifting the ownership cap is largely due to market dynamics, as top-tier owners do not operate in every one of the 210 Nielsen-measured markets. Industry experts argue that greater flexibility will lead to more mergers, stimulating growth and enhancing financial viability, although critics challenge this viewpoint.
“There is no doubt that having a precedence of such a large transaction like Nexstar–Tegna go through and people seeing what the rules are on a firm basis is going to be exceptionally helpful for M&A,” said Sinclair CEO Chris Ripley during a recent earnings call. “It is going to be very helpful in terms of paving the way for future transactions. And we, specifically, are not standing still.”
Curtis LeGeyt, CEO of the National Association of Broadcasters, expressed support for changing the ownership cap, though he did not explicitly endorse the merger itself. This comes amid careful navigation of various business interests within the trade group, as political factors also play a significant role. Following former President Trump’s endorsement of the merger on social media last month, FCC Chairman Brendan Carr echoed the sentiment.
“While NAB does not take a position on the merits of any individual transaction, today’s action by the FCC and DOJ to approve the Nexstar-Tegna merger is a meaningful sign that the Commission understands the urgent need for ownership reform,” LeGeyt stated. “We are grateful to Chairman Brendan Carr for his recognition that the national ownership cap is outdated and no longer reflects today’s media marketplace. This decision is an important acknowledgment that the media marketplace has changed and giving stations the ability to achieve greater scale is essential to sustaining trusted local journalism and emergency reporting.”
Analyst Curry Baker from Guggenheim Securities commented on the potential implications of the merger. “Our view had been that the transaction was on-track to close relatively soon,” he noted in a message to clients. Addressing the state AGs’ lawsuits, he expressed doubt regarding their legitimacy, suggesting that now that the deal has been finalized with regulatory approval, he believes material outcomes from the legal challenges are unlikely.
Baker also maintains a “buy” rating on Nexstar’s stock, projecting a 12-month price target of $290. Similarly, Wells Fargo analyst Steven Cahall raised his target from $250 to $290, reaffirming his “outperform” (buy) rating.
