Apollo-Sony bid for Paramount could face antitrust hurdles from feds: sources

Apollo Global Management and Sony’s bid to buy Paramount Global faces significant hurdles to get the deal past Democratic-led federal regulators amid antitrust concerns, The Post has learned.

Paramount – which ended exclusive merger talks with Skydance Media last Friday – owns the CBS network, its Hollywood studio and 28 local stations – including 17 CBS affiliates in markets like New York, Chicago and Los Angeles.

Apollo, which teamed with Sony to make a $26 billion all-cash bid for the Shari Redstone-controlled media conglomerate, faces an uphill fight to circumvent the FCC’s 39% cap on the reach by local affiliates should the merger be approved by Paramount’s board, multiple sources told The Post.

Apollo owns TV channels that reach 11% of US households through its stake in cable company Cox Media Group, a media investment banker told The Post.

Meanwhile, Paramount’s local stations account for a 39% reach, according to the banker  – putting the total of the combined company well above the FCC’s threshold. 

“Competitors may point out that Apollo’s ownership will exceed the 39% national ownership cap, which in itself is a regulatory anachronism but is nevertheless a real thing at the FCC,” Adonis Hoffman, who served as the agency’s senior legal advisor and chief of staff from 2013 to 2015, told The Post.

Apollo, however, is banking on an arcane FCC loophole called the “UHF Discount” – which cuts in half the percentage of households counted by stations with channels in the UHF bandwidth  – to get below the cap, a source familiar with its thinking said.

Under the discount – passed in 1985 and revoked in 2016 before being reinstated the following year by then-Republican FCC Chair Ajit Pai – Paramount only reaches 25% of households and Cox about 5%, according to the investment banker.

Pai pushed through the UHF Discount in 2017 days before right-leaning Sinclair Broadcast Group announced an agreement to buy Tribune Media, which without the discount would have put the combined company well over the cap.

But there is a significant chance the FCC scraps the UHF Discount because Joe Biden-nominated Chair Jessica Rosenworcel believes it is outdated, several sources said.

“The FCC created the discount, so it can eliminate it,” said Benton Senior Fellow Gigi Sohn, a progressive Democrat whose nomination to be an FCC Commissioner fell apart last year.

Sohn pointed out that there is precedent for reinstating the cap to help a merger, so it could also be eliminated to stop a deal.

“[Eliminating] the UHF discount could … be considered, particularly if there is a proposed acquisition that places the issue before the FCC by relying on the discount to comply with the ownership rules,” said lawyer David Oxenford in a blog post that did not specifically mention the Apollo offer.

Should the FCC get rid of the UHF Discount, the agency could ask for Apollo or Paramount to divest some of the channels to get below the threshold instead of outright blocking the merger, sources said. 

Presently, there are overlaps in three of the markets in which Paramount and Cox serve, the banker said.

The Apollo and Sony bid could also face scrutiny from the Committee on Foreign Investment in the US (CFIUS), which might not be comfortable with a Japanese company owning CBS. 

There is further worry that the Federal Trade Commission could step in to prevent Sony, which has its own film division, from scooping up a second movie studio.

Hollywood mogul Jeffrey Katzenberg said Apollo faced a “high bar” to attain FCC approval for another reason. PE firms have held broadcast licenses both for TV and radio – though never for one of the big three national networks.

 “The FCC is going to allow a private equity firm to take that license? Just think about that,” Katzenberg, a key Biden advisor, said during an  “Axios BFD Talks” event on Sunday night in Los Angeles: 

“This is the license to operate the No. 1 broadcast network in America, which the FCC has an absolute right to approve. And they’re going to say that there’s a benefit for that being in the hands of private equity? I don’t know. That’s a high bar, particularly in the regulatory environment right now.”

Apollo, led by Marc Rowan, has already had a potential merger between Standard General and broadcast station owner Tegna essentially killed by Rosenworcel.

The firm helped finance the bid by Standard General, but the FCC decided last year not to vote on the proposed merger, leaving it to wither away.

Rosenworcel was uncomfortable with Apollo controlling Tegna and Cox, even though Apollo claimed it would be a passive Tegna investor, sources said at the time. Also, she was not keen on a private equity firm gaining such a big foothold in television broadcasting, the sources added.

Standard General sued the FCC in March, alleging the agency discriminated against its offer because it preferred to have African-American Byron Allen owning Tegna.

The FCC “seems to have no tolerance for private equity-backed media ownership, as shown by its recent disapproval — and utter disrespect– of the Standard General bid to buy Tegna last year,” Hoffman said.

“As for timing, the FCC has shown that it really knows how to slow-roll a deal. The 180-day merger shot clock, which is a guide not a rule, has been ignored at the will of the Chair. None of these signs would bode well for an easy or early approval of an Apollo bid.” 

Hoffman noted that the FCC is currently trying to force Nexstar Media Group to fully divest from New York’s WPIX-Channel 11 which it was supposed to divest in a recent merger, but allegedly did not.

“It’s at least a window into the thinking of this current FCC,” Hoffman said.