Negotiating station purchases: Contract question

When negotiating a station purchase, do potential buyers have a legal right to see the station's

- advertising contracts

- on-air personalities' contracts (if the buyer is contemplating a format flip, they might want to know everything about the personalities affected)

- contracts for play-by-play sports (would WPEN have flipped from standards to oldies if their Phillies contract had another season to run?)

I'm talking about during negotiations, before the agreement of purchase is signed. Can they see every contract they request or ask about?

Just curious...

ixnay

Generally speaking, in order to take a look at the things you have mentioned here, you'll first have to tender a Letter of Intent, and generally send with it an earnest money check. This is in order to protect the interest if the Seller, so that not just anybody that comes along can take a look at documents which are incredibly proprietary.

The "legal right" you have to see certain documents is basically determined by the terms outlined in the Letter of Intent. It's a part of the due diligence process, before executing a purchase agreement.

The process basically begins like this: the Buyer will submit a Letter of Intent to the Seller, complete usually with an earnest money payment. The Seller will take the station off the market technically for a short period of time in order to allow the Buyer to perform due diligence. The buyer will have this set term (as short as a week or as long as perhaps 60 days) to decide whether or not the station is in fact worth the price tendered in the LOI, and whether or not the deal will work for the Buyer. If everything looks fine in due diligence and the buyer decides to proceed, then the parties will actually enter into a purchase agreement. Frankly, by this point, the buyer BETTER have done a good job in due diligence. Because, unless the seller has been blatantly dishonest, there isn't a lot of wiggle room in most purchase agreements.

Finally, before tendering a Letter of Intent, a qualified buyer should reasonably expect to have access to the stations's basic financials in order to set parameters for the Letter of Intent.


I hope this is helpful...just let me know if you would like further clarification.

> Generally speaking, in order to take a look at the things
> you have mentioned here, you'll first have to tender a
> Letter of Intent, and generally send with it an earnest
> money check. This is in order to protect the interest if the
> Seller, so that not just anybody that comes along can take a
> look at documents which are incredibly proprietary.
>
> The "legal right" you have to see certain documents is
> basically determined by the terms outlined in the Letter of
> Intent. It's a part of the due diligence process, before
> executing a purchase agreement.
>
> The process basically begins like this: the Buyer will
> submit a Letter of Intent to the Seller, complete usually
> with an earnest money payment. The Seller will take the
> station off the market technically for a short period of
> time in order to allow the Buyer to perform due diligence.
> The buyer will have this set term (as short as a week or as
> long as perhaps 60 days) to decide whether or not the
> station is in fact worth the price tendered in the LOI, and
> whether or not the deal will work for the Buyer. If
> everything looks fine in due diligence and the buyer decides
> to proceed, then the parties will actually enter into a
> purchase agreement. Frankly, by this point, the buyer BETTER
> have done a good job in due diligence. Because, unless the
> seller has been blatantly dishonest, there isn't a lot of
> wiggle room in most purchase agreements.
>
> Finally, before tendering a Letter of Intent, a qualified
> buyer should reasonably expect to have access to the
> stations's basic financials in order to set parameters for
> the Letter of Intent.
>
>
> I hope this is helpful...just let me know if you would like
> further clarification.
>

I was thinking in terms of FCC rules or Federal laws governing what a potential buyer can be shown and doesn't have to be shown at a station he wants to buy. A couple of other things I heard on the radio this morning also piqued my interest but I don't have time to discuss them now.

ixnay

There aren't any specific FCC rules or Federal laws regarding what a buyer should be shown. Those rights are only granted contractually. It's most certainly a 'buyer beware' situation.

> There aren't any specific FCC rules or Federal laws
> regarding what a buyer should be shown. Those rights are
> only granted contractually. It's most certainly a 'buyer
> beware' situation.
>
Was there ever a time when there *were* any? I'm surprised the FCC doesn't regulate this. They regulate everything else having to do with American broadcasting.

ixnay

I personally can't remember a time when these rules were in place, no. The issues becomes the definition and qualification of a buyer. In order for rules to be effective, they would have to be careful to define who would be entitled for the information.

For example, there would have to be language to ensure that the station in question was actually for sale, and that the owner would be interested in selling the the potential buyer in question. Finally, there would need to be a provision to qualify the buyer so that not just anybody could say "hey, I wanna buy your station...show me everything I wanna see".

I think that it actually wouldn't be within the FCC's authority to make these sorts of rules. They would have to be legislated by Congress, and then most likely enforced through the Federal Trade Commission.

> > There aren't any specific FCC rules or Federal laws
> > regarding what a buyer should be shown. Those rights are
> > only granted contractually. It's most certainly a 'buyer
> > beware' situation.
> >
> Was there ever a time when there *were* any? I'm surprised
> the FCC doesn't regulate this. They regulate everything
> else having to do with American broadcasting.

The US regulates relatively little in the way of broadcasting. Compare with our neighbors, canada and Mexico, and we are virtually unregulated except in the ariea of technical operation.

The FCC never intervened in the data a buyer and seller would exchange. The only interest from the FCC in the past was whether the buyer was financially able to operate the station (financial qulaifications) and whether the seller had held the licences long enough. All these have diminished, and the FCc now looks at market concentration and market caps as about the only real determining factor in a sale. there has never been FCC oversight of the internal documents sellers and buyers can share... as broker said, it is pure caveat emptor.

And frankly, it's amazing how little 'checking out' the FCC does when it gets a transfer application. They no longer even contact the buyer or seller, unless there's a major flaw with the filing. And even then, the application usually just sits there until either the buyer or seller realizes the boo-boo has been made. And just try to get a live person at the Commission who can answer your question. You'd have better luck trying to build a snowman in Aruba.

The FCC used to check out financial qualifications for buyers. Not these days. You simply have to check 'yes' on the financial qualification question on the application. Of course, this makes my job as a broker even more important in that I really have to qualify potential buyers before putting deals together.

As a buyer, if you don't ask for the right documents and info when you are doing due diligence, you can really get yourself into a pickle. I always stress to my clients that you have to find the skeletons before they fall out of the closet on you. When it comes to some of the specific documents mentioned by ixnay, you really also have to be careful what you agree to assume in the Purchase Agreement.

Another piece of advice I can offer is to ensure the Letter Of Intent (LOI) contains a non-disclosure clause to ensure confidentiality thoughout the process.

It would be normal due diligence to review all contracts and determine the obligations and assets of the business so nothing biutes you in the butt by surprise after you've taken over the company.

Lee

Also, when you are doing due diligence, don't forget to look at trade arrangements. You don't want to end up having to continue trading out the note payment for the former owner's Cadillac.

In your purchase agreement, you should include specific language which states that you assume ONLY the contracts listed in Schedule Whatever. This is boilerplate in MOST Purchase Agreements drafted by most folks these days. But, you should make sure just in case.

Even if you aren't responsible for the trades because you exclude them via your PA, you still need to know about them so you don't cause some hard feelings among advertisers when you won't pony up the ads for the goods a former owner may have gotten.

In the days before I became a broker, I had a good friend who bought a station. Three months later, a greasy fella in a mechanics uniform stumbled into the station and said "I'ma ready fur my avertisin fur them tars you'uns gawt back in the sprang". My friend, looking like a deer in the headlights, explained that he was the new owner and that he didn't assume responsibility for the trade. The poor greasy fella, who happened to own the biggest tire store in town, never advertised with the station again.