Nexstar Media Group is in the process of replacing its Board of Directors to oversee its subsidiary broadcast operations TEGNA after a judge ruled earlier this month that the company’s decision to appoint its own executives to the Board violated a prior court order.
In a status report filed Thursday, attorneys for Nexstar and TEGNA said four of the five TEGNA directors — including the company’s founder and CEO Perry Sook — have resigned from the Board in response to a finding from U.S. District Judge Troy Nunley on August 6 that said the composition of the Board contravened a hold separate order issued as part of a broader antitrust lawsuit.
The lawsuit argues that Nexstar’s acquisition of TEGNA in March violates federal antitrust rules because it concentrates too much power with a single broadcast entity, which will lead to higher cable and satellite fees for consumers and lower investments in local news, allegations that Nexstar denies. The challenge is being brought by California Attorney General Rob Bonta in concert with other states attorney general; a similar antitrust lawsuit filed by DIRECTV was merged into the case brought by the states.
In April, Nunley issued a preliminary injunction requiring Nexstar to distance itself from TEGNA while the case plays out. The thinking behind the order was to ensure that Nexstar and TEGNA could quickly divorce from each other if the antitrust case is successful, and was based on preliminary evidence submitted by both parties.
Nexstar is allowed to cooperate with TEGNA on some affairs, including federal financial reporting requirements, but isn’t allowed to appoint its own executives to run the company and cannot pass down orders on how TEGNA’s portfolio of local TV stations and other products operate.
Despite this, Nexstar created a Board of Directors to oversee TEGNA that included Sook and three other sitting executives, plus a fifth member who previously worked for Nexstar. The other four members were Nexstar President and Chief Operating Officer Michael Biard, Chief Financial Officer Lee Ann Gliha and General Counsel Elizabeth Ryder and former Nexstar executive Timothy Busch.
Nunley issued a scathing order earlier this month, admonishing Nexstar for violating the spirit of the preliminary injunction by appointing its own executives to oversee TEGNA when the companies were supposed to be operationally separate. Nunley became aware of the situation because DIRECTV filed a request for clarification with the court that pointed to media reports about how TEGNA was operating under Nexstar’s oversight.
Nunley ordered Nexstar to remedy the issue, issue regular status reports and provide discovery evidence to the state attorneys general and DIRECTV.
In Thursday’s status report, Nexstar said Sook, Biard, Ryder and Busch have resigned from the TEGNA board. Gliha has not yet resigned because Delaware law requires at least one person to be on the Board, though she will not take any action as a Board member without permission from the court and is expected to depart once replacement Board members have been found.
The filing said a TEGNA board meeting scheduled for the afternoon of August 6 was canceled after Nunley issued his order. The board has not met since then.
Nexstar is working to select and appoint a new board as soon as possible but the broadcaster said the process may take longer than a 10-day deadline previously imposed by Nunley. It asked for permission to submit another report by August 31 unless a new board is appointed earlier. The company also affirmed it is complying with discovery provisions in the court’s order and conferring with the plaintiffs over issues related to a possible special master.
In prior public statements, Nexstar said it would comply with Nunley’s earlier injunction while simultaneously defending its merger with TEGNA. The acquisition received clearance from the U.S. Department of Justice (DOJ) and the Federal Communications Commission (FCC) before the deal closed, though the approvals came less than 24 hours after the state attorneys general filed their antitrust lawsuit.
The breakneck speed at which the deal closed after receiving regulatory approvals has raised eyebrows among media and financial observers, who speculate the acquisition was fast-tracked in order to circumvent what was, at that time, pending litigation. Ordinarily, companies close major transactions within weeks of securing all necessary approvals from state and federal regulators, but Nexstar’s deal closed just a few hours after the FCC and DOJ signed off on the transaction.
The deal is valued at more than $6 billion and allows Nexstar, already the largest independent owner and operator of local TV stations in the country, to further grow its empire by receiving TV licenses associated with five dozen TEGNA stations. Most of those outlets are affiliated with major broadcast networks — ABC, CBS, Fox and NBC — which are highly prized by cable and satellite distributors for their offering of regional and national sports programming.
Following the company’s second quarter (Q2) earnings report, Sook told investors he was open to a settlement in order to resolve the lawsuit and move things forward, though he didn’t offer any specific insight into what compromises might be made to bring the case to an end.
Bonta has been less gracious: When asked by The Desk in April if he would be willing to compromise and settle the case, he made it clear that the only outcome California wants is for the merger to end with Nexstar and TEGNA remaining separate companies.
“What we’re looking for is a block of the merger — that’s what we’ve asked for,” Bonta said. “It’s already permissively unlawful, and that’s why it’s been blocked through a preliminary injunction…Nexstar and TEGNA are both appealing the order; I do not think they will prevail based on the facts and the law, but it is their right to try.”
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