In Re Application of PLOUGH, INC. (TRANSFEROR) and SCHERING-PLOUGH CORP. (TRANSFEREE) For Transfer of Control of Plough Broadcasting Co., Inc., Licensee of Radio Stations WCAO and WCAO-FM, Baltimore, Md.; WCOP and WCOP-FM, Boston, Mass.; WJJD and WJJD-FM, Chicago, Ill.; WMPS and WMPS-FM, Memphis, Tenn.; and WPLO and WPLO-FM, Atlanta, Ga.
26 F.C.C.2d 813
File No. BTC-6369
MEMORANDUM OPINION AND ORDER
(Adopted December 9, 1970; Released December 15, 1970)
BY THE COMMISSION: CHAIRMAN BURCH CONCURRING IN THE RESULT; COMMISSIONER BARTLEY ABSENT; COMMISSIONERS JOHNSON AND H. REX LEE DISSENTING AND ISSUING STATEMENTS.
1. Plough Broadcasting Company, Inc. has been the licensee of the above station for many years -- WCAO and WCAO-FM since May 18, 1956; WCOP and WCOP- FM, May 10, 1956; WJJD, September 14, 1953 and WJJD-FM, November 8, 1960; WMPS and WMPS-FM, March 16, 1945 and WPLO and WPLO-FM, since June 20, 1959. It has never sold any of its stations. Now Plough Broadcasting's parent company, Plough, Inc. (Plough), a company which essentially manufactures and distributes proprietary drugs, proposes to consolidate with Schering Corporation, a company essentially engaged in the manufacture and distribution of ethical drugs.
2. The Plough common shareholders will exchange their stock for common stock in Schering-Plough 1.3 to 1 and Schering will be exchanged 1 to 1. The percentage of ownership of the new company will be approximately: Plough shareholders, 39.3%, and Schering, 60.7%. Abe Plough, the founder of Plough, Inc., will remain as President of Plough, Inc., and become Chairman of the Board of Schering-Plough Corporation, and member of the Executive Committee and the largest single stockholder with about 3.14% of the stock. He will therefore have a substantial voice in the operational policies of the broadcast stations. However, since eight members of the Board of Directors of Schering-Plough Corporation, to consist of thirteen members will be nominated by Schering, a transfer of control of Plough, Inc., parent company of Plough Broadcasting, the Commission licensee, will take place and an application for Commission authorization for this move is necessary. One was duly filed and is before us.
3. Even though an application was necessary, we note that the agreement states in part that 'Schering and Plough, as autonomous subsidiaries of Schering- Plough, will each continue (so far as practicable and consistent with the basic purposes of this agreement) to operate its business enterprise separately as it is presently doing.' It also provides that the 'Boards of Directors of Schering and Plough will have responsibility for the activities and for preserving the continuity of the management, operating personnel and policies of their respective corporation in accordance with annual operating and capital project plans approved by the Schering-Plough Board following submission thereto by Schering and Plough.' The proxy material also contains a statement that the business and operations of Schering and Plough will be conducted by them as separately operated subsidiaries of Schering-Plough. The Boards of the operating subsidiaries, Schering and Plough, will each have seven members principally from operating personnel. Plough will nominate two members of the Schering Board and Schering will nominate two members of the Plough Board. We also note that 'Schering and Plough decided to consolidate their business interests for reasons entirely unrelated to broadcasting.' Plough's experience in the proprietary drug field complements the experience of Schering in the ethical drug field...'
4. Schering, Plough and Schering-Plough are domestic corporations. Both Schering and Plough surveyed their stockholders to determine citizenship. Plough's alien ownership on the basis of the sampling represents less than 0.3% of the stock and Schering's less than 0.6%. Only one proposed director of the new company will be an alien. We find that the transferee fully qualifies under Section 310(a) of the Communications Act.
5. The transferee is financially qualified. No cash is involved and the companies will continue to operate separately. The Plough consolidated balance sheet shows current assets of $76,948,762 and current liabilities of $21,034,567. It has no long terms debts. Schering's consolidated balance sheet shows current assets of $120,285,000 and current liabilities of $50,573,000. Schering has a long term debt of $1,949,000.
6. As previously noted, the proposed consolidation will leave intact the management and policies of Plough Broadcasting. A full programming showing has been submitted for the stations. The application lists the community leaders contacted and the results of the general audience surveys. The significant comments and suggestions received are stated, analyzed, and the programs proposed to meet the ascertained needs are listed.
ONE TO A MARKET
7. Four of the five AM-FM combinations involve full-time facilities. Therefore the Commission's 'one to a market rule' is involved. The parties contend that the AM and FM stations are so technically integrated that they cannot be sold separately and operated. It is also argued that for economic reasons the FM stations could not be separately sold. Finally, it is argued that two of the FM stations, WCAO-FM and WMPS-FM, provide a low commercial classical music program service which can exist only because of the association with the AM station. They also point out that WPLO-FM offers a youth-oriented progressive rock format, unique to Atlanta, which is also dependent upon the revenues from the AM station.
8. In this transaction, the policies and management of the licensee will remain unchanged. The agreement between Plough and Schering expressly records the intention of the parties that Plough, the parent of the licensee, as an autonomous subsidiary of the new holding company, will continue 'to operate its business enterprise separately as it is presently doing.'
9. Additionally, the AM-FM facilities are in fact closely integrated. In all four cases, studio facilities are common. The transmitters share the same property and auxiliary equipment. In Baltimore, Memphis and Atlanta, the FM antenna is mounted on one of the AM towers. In Boston the FM tower is on the same property just outside the main lobe of the AM directional pattern and must be kept carefully deturned, thus supporting the contention that it should be under the control of the AM station as long as it is located there. We conclude that the applicants have demonstrated a valid exception to the aforementioned rule.
10. The Commission has fully considered the application and concludes that the transferee is fully qualified and that a grant will serve the public interest, convenience and necessity. IT IS THEREFORE ORDERED, That the application for the voluntary transfer of control of Plough Broadcasting Company, Inc. from Plough, Inc. to Schering-Plough Corporation IS GRANTED subject to a later determination of the grant fee.
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
I dissent to the Commission's approval of
the transfer of the ten radio stations owned by Plough Broadcasting, a subsidiary
of Plough, Inc. My reasons are brief, but I believe persuasive.
The Federal Trade Commission staff is presently considering the possible anticompetitive implications of this merger. I do not believe this Commission should act until we have had the benefit of the FTC's views on those questions. Antitrust considerations are an important aspect of the FCC's public interest evaluation and it is difficult to see how the majority can make a public interest finding while these questions remain.
Secondly, I find the showing made by the applicants in support of their request for a waiver of our one-to-a-market rules to be wholly unsatisfactory -- if not, indeed, non-existent. In short there is no reason to believe that the AM-FM combinations here subject to the rules could not be divided as the Commission intended when it adopted the rules. The Commission has vacillated on whether or not to enforce AM-FM splits when stations are sold, and now apparently a majority is in favor of allowing AM-FM combinations to continue.
Finally, I adhere to my view that in large mergers the Commission must undertake more of an inquiry into whether public interest benefits will result from those mergers as the law requires. We should not simply rely on paper pleadings submitted to the Commission. In this case, I would designate for hearing the application in order to determine on the record what benefits, if any, exist to support a finding that the public interest will be served.
DISSENTING STATEMENT OF COMMISSIONER H. REX LEE
I find myself required to dissent to the Commission's action authorizing the consolidation of Plough, Inc. and the Schering Corporation. The transaction, and the manner of its presentation to the Commission, clearly violates the One-to-a-Market rules.
When these rules were first adopted, the Commission specifically made provision for exceptions in those hardship cases where, because of market size or the financial plight of FM radio and UHF television broadcasting, strict enforcement of One-to-a-Market requirements would not serve the public interest. Where such showings have been made, I have had no hesitation in approving them. But none of these mitigating considerations were satisfactorily urged upon the Commission in connection with this transfer. Nobody seriously contends that this transaction does not involve a transfer of control of the Plough Broadcasting Company stations. Since no facts in mitigation of the One-to-a-Market regulations were presented, and no waiver was requested, only one course of action was permissible; the Plough Broadcasting AM-FM stations, located in the same communities, should have been separately sold. The common ownership of AM-FM radio facilities in the same community is absolutely prohibited, unless a satisfactory showing can be made 'that for economic or technical reasons the stations cannot be separately sold and operated.'
To say, as the applicants did, that the Plough AM-FM facilities are closely integrated, the studios are housed in common property, the radio transmitters are co-located, and the antennae are mounted on the same towers, only describes the physical circumstances which exist in many cases of common ownership. The narrative description of these common ownership attributes does not constitute a satisfactory showing that the station facilities cannot be separated or separately sold. And the statement of inseparability is not improved by the applicant's self-serving declaration of inability to self-off the stations. The Commission's First Report and Order in the One-to-a-Market proceeding seemingly required some hard evidence of an attempt to sell, or, at least, a demonstration of inability to successfully negotiate such transactions. The Schering-Plough application was submitted without any evidence of such effort.
The failure to comply with a Commission rule should require disapproval of the transaction. Admittedly, the Commission has the One-to-a-Market proceeding under reconsideration. But, as a practical matter, it has not chosen to stay enforcement of these rules pending the outcome of its deliberations. Broadcast licensees, therefore, are obligated to comply with the rules, whatever the Commission's ultimate disposition. It is no answer to the necessity for maintaining the integrity of enforcement procedures to say Plough radio management and policies will not be changed by the transfer. However truthful the assertion, it is not a fact which engages the exceptions to the One-to-a-Market Rules.
Finally, I dissent to this transfer because the Commission's action allows the completion of a major transaction without determining how the new schedule of transfer fees will be applied to it. The transaction contemplates an exchange of stock based on certain market values in the securities. There is no cash consideration associated with it. This kind of transfer, therefore, necessarily requires a complex evaluation of the basis on which the Commission's new 2% transfer fee should be determined. To leave that decision in abeyance, only leads to future haggling over the amount of the fee, and encourages a rash of transfers geared to security exchanges where there is no cash consideration on which to base a fee. Because the Commission approved this transfer without settling these questions, I am compelled to dissent.