The American economy is stronger, and consumers benefit, when assets are put to their best use. In a free and competitive market, businesses that can put assets to their best and highest valued use are those that are willing to pay the most for the assets. Americans should be concerned when such market transactions are blocked without good reason.
Consider recent efforts of Standard General to acquire for billions of dollars Tegna, one of the largest owners of local broadcast stations in the United States. Standard General believes that it can put Tegna’s assets to better use.
Large transactions are reviewed by federal antitrust authorities to avoid anticompetitive conduct. After reviewing for nearly a year a proposed multi-billion-dollar acquisition of Tegna by Standard General, the staff of the Federal Communications Commission recently effectively blocked the deal, but not for antitrust reasons.
The FCC staff issued a hearing designation order. Although it did not find that any statute or rule had been violated, the staff stated: “substantial and material questions remain as to both the potential impact, and possible harm, to consumers through higher retransmission consent fees, and the effect on localism through potential reductions in local jobs.” If that sounds like bureaucratic doublespeak, it is.
With no prospect of success at the FCC, the merging parties will almost certainly withdraw. Chagrined, the parties will wonder how to put Tegna’s assets to better use. Surely, in a competitive American economy, the assets should be put to higher-valued uses. Here is a solution: One or both of the parties could challenge the FCC in court.
Either Tegna and Standard General should claim that the FCC does not even have authority to review mergers. The federal government reviews mergers under antitrust law through the Clayton Act. For broadcast transactions, the responsible federal agency is the Antitrust Division of the Justice Department. Staffed with antitrust professionals alert to protect the public from higher costs, the Department of Justice does not allow mergers that would harm the public or the public interest. The Antitrust Division has not chosen to block the proposed Standard Charter acquisition. The FCC instead has done the honors.
Federal antitrust law does not codify a tag team of the FCC and the Justice Department with both having authority to review the same merger. How does the FCC insinuate itself into the federal merger review process? Since the mid 1990s, the FCC has asserted that it can review entire mergers by leveraging its authority to review license transfers under a “public interest” standard. This interpretation is an extraordinarily expansive reading of a federal statute that Congress did not write for the purpose of merger review. Over the past 25 years, the FCC has reviewed more than 100 mergers.
Many government agencies issue licenses and permits. The Small Business Administration lists eleven different federal agencies that issue licenses and permits not including the FCC. Many government agencies, at both the federal and state level, must approve the transfer of a license or a permit. It is usually a clerical process. But the FCC uniquely claims that the review of license transfers gives the agency the authority to review entire mergers.
The FCC often imposes merger conditions as well. To ensure that the merger conditions are not challenged in court, the FCC requires the merging parties to submit a “voluntary” list of proposed merger conditions. It does not take much imagination to understand how the merging parties under duress discover the “voluntary” conditions. In contrast, the Department of Justice or the Federal Trade Commission must go to court to block a merger or to impose conditions on one. Not so at the FCC.
No one has challenged the FCC’s merger review process because most parties eventually have their mergers approved with “voluntary” conditions. Those that are denied, such as Tegna and Standard General, often hope to have a future merger approved and are reluctant to challenge a powerful and possibly vindictive agency that would have to approve a future merger.
Tegna and Standard General might also claim that the premises of the Hearing Designation Order—higher retransmission fees and less localism—even if true are not violations of either statute or FCC rule. But the central issue should be the lack of authority to review mergers.
Courts may be more receptive today than a year ago to a challenge to a broad interpretation of FCC authority. Last year, the Supreme Court ruled in West Virginia v EPA that federal agencies cannot address major questions unless Congress provides such authority directly in statute. Congress never provided the FCC with the authority to leverage the review of license transfers into a full-scale review of mergers. The FCC is addressing a major question not only beyond its statutory authority, but squarely within the statutory authority of a different agency, the Department of Justice. Tegna and Standard General should challenge.
The problem is not merely the overreach of a federal agency. The bigger problem is that, even in the absence of anticompetitive concerns, assets are not reaching their best and highest valued use. The American economy loses, and so does the American consumer.
