The Federal Communications Communications Commission staff is reviewing the agency's recent approval for the merger of Gannett Co. and Combined Communications Corp. to see if the case should be reopened.
Within an hour of the FCC's 5-1 vote June 7 to approve the biggest media combination ever put before the regulatory agency, Gannett and Combined formally completed the $370 million exchange of stock by signing documents here.
Subsequently, however, the Securities and Exchange Commission filed a major fraud complaint against American Financial Corp. of Cincinnati, which had been the largest stockholder of Combined Communications and now owns 7 1/2 percent of the merged company - second in percentage only to the Gannett Newspaper Foundation, which owns about 11 percent.
Informed sources said yesterday that questions about American Financial's potential role as a major owner of Gannett, in the wake of the SEC case, prompted the new FCC staff review. FCC staff members asked the SEC to forward details of its complaint across town.
The combination of Gannett and Combined created a multimedia firm that owns 80 newspapers in the United States and its territories, 7 television stations, 12 radio stations, outdoor advertising businesses in the United States and Canada, newsprint interests, weekly papers and the Louis Harris polling organization.
Gannett Chairman Allen Neuharth, informed by a reporter yesterday of the FCC staff review, expressed shock. "This comes as news to me...not in my wildest imagination can I see anyone typing American Financial to Gannett," Neuharth said in a telephone conversation from Cincinnati, where Gannett now has taken over Combined's former daily, The Enquirer.
The SEC case against American Financial, a financial holding company based in Cincinnati, was filed in U.S. District Court here on July 2 - just one day before the FCC issued its final order approving the communications companies' merger. The lawsuit alleged that false information was provided the government and that stockholders were defrauded.
In an unusual negotiated settlement of the SE complaint, American Financial Chairman Carl Lindner agreed to pay the firm $1.4 million $&(WORD ILLEGIBLE and consented to an order to stop violating antifraud laws. Other officers and the company also agreed to a consent order, without admitting or denying they had violated the law.
Lindner and his family own 45 percent of American Financial, which has assets of more than $2.8 billion. AFC, in turn, owned 32 percent of Combined Communications, counting stock and warrants to buy stock. Lindner was on Combined's board and was listed as publisher of the Cincinnati Enquirer until mid-June, when his name was removed.
Reversals of FCC decisions by the agency itself have been extremely rare. But last week, the commission voted in a closed session to rescind an earlier staff decision granting a Michigan television license to Panax Corp. because of information "received since that staff decision" about Panax President John McGoff involving alleged use of secret South African funds.
Under FCC procedures, the agency may decide to reconsider a grant of licenses within 30 days after final approval - which establishes a deadline of Aug. 3 in the Gannett case. "All I can say is that we're looking at the SEC thing on Lindner...I don't know how long it will take," an FCC staff member involved in the review stated yesterday.
Neuharth said that while the "staff can review anything...neither Lindner nor American Financial have any control of directorships of Gannett...Lindner has no voice in this company."
American Financial owned the Cincinnati Enquirer from 1971 until 1975, when it sold the daily to Combined Communications of Phoenix for 1.5 million shares of Combined plus warrants for 750,000 additional shares.
AFC officials did not respond to a reporter's inquiries yesterday, but a company spokesman was quoted in the June 8 Cincinnati Post as stating "no determination has been made at this time" on whether to hold or to sell the new Gannett interest, worth about $100 million.
In approving the merger of Combined (a major broadcast firm) with Gannett (the largest newspaper chain, in terms of number of papers), the FCC voted to waive certain requirements designed to make media ownership more diverse.
The lone vote against the merger was cast by FCC member Abbott Washburn, who recently issued a stinging written dissent, charging that the agency had approved "another spur toward the placing of the organs of information and news and opinion in this country in fewer and fewer hands...an unhealthy thing for democracy: absentee ownership, on a vast scale, of newspapers and broadcasting stations."
Among Washburn's comments:
- "Where are the William Allen Whites [a famous Kansas editor from 1895 until he died in 1944] of 1979? Too many of them have been bought out, one by one, by the chains. They've been made offers they could not refuse."
- "The language of the order maintains that this merger can be effectuated without contravening any of the FCC's rules, although the majority found it necessary to waive the commission's ban on "trafficking" in broadcasting properties...I cannot support the order, in light of the enormity of the communications combine it authorizes nationally, and in light of the FCC's multiple ownership rules."
- ".... There is the danger of one or more of these chains becoming merely parts of even larger conglomerates, huge entities managed by executives with no experience in the information media, but who nevertheless would be making ultimate decisions affecting all of the American public."