The Federal Communications Commission decided yesterday not to intervene in a proxy fight for control of Storer Communications Inc. and to examine the role the agency should play in such hostile media takeover attempts.
The FCC said that after its study it will institute a rule-making procedure to define its role in takeover fights.
However, the decision not to intervene in the Storer proxy fight divided the commission 3 to 2. Commissioners James H. Quello and Henry Rivera voted against the decision.
Quello said that the FCC was encouraging "bust-up liquidation promoted by professional raiders and causing potential anarchy throughout the communications industry."
He said the actions of a dissident group showed that a "substantial" transfer of control would take place if it succeeded, and, therefore, the credentials of the dissidents should have been more thoroughly scrutinized and the public should have been given an opportunity to comment.
The decision by the commission majority reflects the way the current takeover cycle is disturbing the communications business and indicates that media companies may not be treated so differently from targets in other industries.
"We are going to file an appeal with the U.S. District Court of Appeals, and the company believes the court will reverse the commission's 3-to-2 ruling and sustain the minority viewpoint," a Storer spokesman said.
"The Storer argument was not successful in stopping [us]," said Stephen A. Sharp, a lawyer with Skadden, Arps, Meaghen & Flom representing the Committee for Full Value of Storer Communications Inc., the dissident group seeking control of the company. "The proxy contest proceeds," he said.
Storer, which is based in Miami, operates cable television systems in 18 states and owns seven television stations.
Storer believes the FCC has taken a definite regulatory position regarding hostile takeovers, saying the agency has, in effect, sided with the investor group seeking to gain control of the company by not waiting to make a decision until after the stockholders meeting next month.
Storer originally appealed to the FCC to dismiss the application of the dissident group. The group told the FCC it would try to replace Storer's directors at the company's annual meeting May 7 so that it could liquidate the broadcasting concern. The dissidents say the company is significantly undervalued on the stock market and that stockholders stand to benefit more from liquidation of the company.
The FCC staff refused to block the proxy fight and possible transfer of control, contending that control of Storer rests with the shareholders. But under pressure from several congressmen and others, the FCC agreed to review the decision not to intervene.
The FCC handling of Storer's case was being watched closely by CBS Inc., which has recently been rumored to be a takeover target of Cable News Network founder Ted Turner. When Charles Ferris, an ex-FCC commissioner who is now an attorney representing Turner, went to the FCC recently to inquire how it would react to a hostile takeover, he was told the commission would not allow itself to be used as "shark repellent."
Speculation about takeovers in the media has increased even more since Capital Cities Communications Inc. announced on March 18 that it had agreed to acquire American Broadcasting Companies Inc. for more than $3.5 billion in a friendly deal.
Traditionally, media companies have believed they were immune to hostile takeover bids because the FCC must approve all license transfers. However, the FCC decision indicates the agency would not oppose a hostile takeover so long as the raider was an approved broadcaster.
The FCC would require the dissident group to meet minimum disclosure requirements before a license is transferred. The group would be required to prove only that it has never violated criminal or other laws, and the proposed directors would be asked to submit information on their citizenship and media ownership.
The Storer case is unlike many takeover fights because it involves a proxy fight within the company rather than a hostile tender offer from an outsider. Storer has further complicated its own situation by previous arguments to the FCC that stockholders -- and not management -- control the company.
In 1976, with the death of George Storer, who owned 25 percent of the broadcasting company, the company told the FCC that control was transferred to a broad group of stockholders. The current situation, therefore, does not represent a substantial change of control because it still involves stockholders -- just a different group of them, industry lawyers said.