FCC Sets Limits on Use of Divestiture Trusts When Station Purchase Would Put Buyer in Violation of Multiple Ownership Rules

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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.

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Published In: Bankruptcy Updates, Business Organization Updates, Communications & Media Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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