FCC Seeks Legal Advice on Broadcast Takeover Policy

Some of the nation’s best legal minds were asked Tuesday to help devise a policy to protect the public interest without taking sides or getting in the way when someone attempts a hostile financial takeover of a broadcast station.

The Federal Communications Commission urged corporate attorneys, leaders of the American Bar Assn. and the public to submit ideas on how the government should deal with future attempts to obtain a broadcast license by hostile takeover or proxy fight.

In suggesting ABA involvement, Commissioner Henry Rivera said corporate lawyers “can be very creative.”

Current fights for control of CBS, Multimedia and Storer Communications will continue to be handled through a patchwork of guidelines that the FCC has developed in the absence of a formal policy on hostile takeovers.

“The staff will do its best to expedite them,” said James C. McKinney, chief of the FCC’s mass media bureau, which is studying the proposals.

He added that any proposals filed before a new policy is approved will not be affected by any new rules. He said he thought the inquiry would be completed by the end of the year.

Roy Stewart, whose video services division will handle the inquiry, told the commissioners that the policy that he hopes to develop for their consideration would follow four guidelines:

- Comply with the Communications Act, the law passed by Congress in 1934 to govern broadcasters.

- Maintain FCC neutrality between competing parties.

- Accommodate to the greatest extent possible state laws and other federal policies governing corporate business.

- Provide an expedited approval process to make certain no one party is favored over another.

FCC Chairman Mark S. Fowler said: “When it comes to unfriendly takeovers, some view the FCC, historically, as a trap door, some as a swinging door. . . . I think this notice of inquiry will be designed to show that that door to FCC approval is neither booby-trapped nor locked nor unattended, and standards for opening it should not be based on who is standing before that door.”

The idea of trying to wrest control of a publicly held broadcast property from existing management has been tried only once before, in 1979, when American Express made a tender offer for McGraw-Hill, which owned four TV stations through subsidiaries.

American Express withdrew the offer before the commission acted.

Stewart suggested to the commissioners that they could consider a two-step process that would give quick approval to a trustee who would gather shares on behalf of a potential buyer, to be followed by a full and lengthy FCC approval process, including time for public comment. He recommended that the commissioners make sure that there is a degree of insulation between the trustee, who would gain control over corporate affairs as his percentage of stock ownership grew, and the ultimate buyer.

On proxy fights, the commission asked for comment on who really controlled a publicly owned corporation--the stockholders, the board of directors or management.

One commissioner, James H. Quello, himself a former broadcaster, spoke against the idea of giving a trustee quick approval. He questioned the wisdom of allowing control to be taken from existing management before a new ultimate owner has received FCC approval.

However, the FCC staff argued that the trusteeship method has been used by the Interstate Commerce Commission and the now-defunct Civil Aeronautics Board in cases that are roughly similar to broadcast takeovers.

A federal court has upheld at least one trusteeship approval.