State AGs as Independent Enforcers: What to Glean from the Challenge to the Nexstar/Tegna Acquisition

Last week brought a one‑two punch for Nexstar’s proposed $6.2 billion acquisition of Tegna. On March 18^th, eight state attorneys general—spanning California to Virginia—filed a sweeping Clayton Act challenge seeking to permanently enjoin the deal. That same day, DIRECTV filed its own action for injunctive relief—a rare private challenge—alleging that the merger would turbocharge retransmission fees and trigger newsroom closures nationwide. The FCC and the Department of Justice Antitrust Division (DOJ) declined to block the transaction, which closed on March 19^th. Neither complaint sought a temporary restraining order, and it remains to be seen how the court will react to the parties closing the merger over the pending lawsuits. 

Although the theories in the two complaints differ in some respects, they share a central claim: the merger would create unprecedented concentration in the licensing of Big Four retransmission consent and give Nexstar enhanced leverage to raise prices and reduce the quality and diversity of local news. Together, these actions offer important insights for companies contemplating strategic transactions.

In particular, four takeaways stand out: 

1. the escalating risk of state attorney general enforcement;
2. the staying power of the 2023 Merger Guidelines;
3. the renewed potency of private merger challenges; and
4. the loss of distinct viewpoints as a vector for assessing reduction in quality.

Background on Complaints

In the complaint filed by California, Colorado, Connecticut, Illinois, New York, North Carolina, Oregon, and Virginia, the states define the relevant product market as the licensing agreements to retransmit television programs from the Big Four—ABC, CBS, NBC, and Fox—alleging that the affiliate stations have unique offerings to viewers. The states note that both the DOJ and the Federal Communications Commission adopted the same product market in prior investigations.[1]

The geographic market in the states’ complaint is calculated in units of designated market areas (“DMAs”), of which the proposed transaction would implicate 31 across the country. Each DMA represents a market area in which Tegna and Nexstar each own at least one Big Four-affiliate station, and 11 of the 31 DMAs directly affect residents of the plaintiffs-states. 

In detailing the presumptive illegality of Nexstar/Tegna deal, the states allege that the post-merger HHI in each affected DMA would far exceed 1,800, with the highest being 6,556 in the Norfolk-Portsmouth-Newport News region in Virginia. The lowest market share of the merged entity in a DMA would be 48.6%, which is greater than the 30% standard in the Merger Guidelines. 

The states advance three theories of harm. First, the acquisition would raise retransmission fees for the 11 DMAs where Tegna and Nexstar directly compete, which would result in higher subscription prices and fewer viable alternatives. Second, given the industry practice of negotiating retransmission agreements on a “station-group, multi-market ‘footprint’ basis,” the anticompetitive effects of higher prices would spill over into the remaining DMAs where Tegna and Nexstar do not own competing stations. Third, Nexstar’s modus operandi of consolidating newsrooms would lead to job cuts and a reduction in the number of independent news outlets, which, according to the states, is a decrease in news quality. 

DIRECTV’s theories of harm track those brought by the states—including the same product and geographic markets—alleging potential price hikes for retransmission licenses and a reduction in the quality of local broadcast news offerings.   

Embracing the 2023 Merger Guidelines

Both complaints adopt the lower market share threshold for presumptive illegality (Guideline 1), discuss Nexstar’s serial acquisitions (Guideline 8), and industry trends toward consolidation (Guideline 7) as outlined in the 2023 Merger Guidelines. All three of these guidelines represent an evolution from the 2010 Horizontal Merger Guidelines, which used a higher market share threshold for scrutiny and did not consider serial acquisitions or trends towards consolidation to independently warrant investigation. This explicit endorsement of the 2023 Merger Guidelines by both state enforcers and a private claimant increases the likelihood that these principles will continue to shape merger review processes and be adopted by courts. 

Station Consolidation as Quality Degradation

In addition to the traditional theories of harm in which the proposed transaction allegedly reduces competition and raises prices for consumers, both complaints allege that Nexstar’s longstanding strategy to consolidate newsrooms would sacrifice local news reporting and give Nexstar editorial power to “suppress viewpoints and exclude voices that are essential to a robust political and social discourse.”  The states’ complaint claims that “[e]liminating independent sources of local news is a quality degradation resulting from the aggregation of market power and, as such, fits neatly within traditional antitrust concerns over the ability of firms with significant market power to lower the quality of products (even as they boost prices).” DIRECTV describes the “reduced variety and quality” of content as “precisely what the antitrust laws are designed to prevent.” In couching this impact on consumers in traditional antitrust parlance, both complaints contend this loss of independent reporting constitutes a reduction in quality.

Rise of Independent State AG Challenges

While many state AGs have historically acted in concert with federal enforcers to challenge mergers, the present case shows that state AGs will sue to block deals even without the support of their federal counterparts. The last time state and federal enforcers diverged on merger enforcement was in 2019 during the first Trump administration when over 10 state AGs sued to enjoin the T-Mobile/Sprint merger after DOJ cleared it. Their challenge was ultimately unsuccessful, but it demonstrated that state antitrust enforcers were willing to litigate on their own.

The states’ challenge to the Nexstar/Tegna acquisition comes on the heels of ongoing litigation in the Live Nation monopolization case, in which a bipartisan coalition of state AGs have forged ahead after the DOJ settled its claims mid-trial. In that case, the states are also pursuing theories of harm under their own state antitrust and consumer protection statutes, whereas in the present case they sued only under federal law. 

State AGs have varying degrees of resources to bring these cases, but they can leverage their resources by working together. Some are significantly increasing their antitrust litigation capacity as they see new opportunities to make their mark in the competition and consumer protection space. 

Increased Risk of Private Merger Challenges

DIRECTV, a customer of the merging parties, filed its own private action on the same day in the same district court, seeking to block the proposed acquisition on substantially similar grounds. The private right to challenge a merger has existed since the enactment of the Clayton Act in 1914, but it is uncommon due to the cost and difficulty in showing antitrust injury—a requirement for standing to sue. This rare instance of a private party suing to stop a transaction highlights the potential hurdles to clearing a deal even when federal enforcers give it the green light. 

Looking Ahead

It remains to be seen how the states and DIRECTV will fare in their challenges of Nexstar’s acquisition of Tegna, but the lessons are clear: 1) Merging parties should continue to expect scrutiny by state AGs (even if federal enforcers decline to act); 2) The 2023 Merger Guidelines continue to gain traction; 3) Private parties pose more of a risk than just providing evidence to bolster an enforcer’s claims; because as customers, suppliers, and competitors, they may seek to stop or unwind mergers themselves; and 4) Claims regarding non-price competitive effects from transactions such as reduction in quality remain popular.    

Freshfields associate, Amy Cheng, contributed to this article.