Tribune Media has backed out of its $3.9 billion merger with Sinclair Media Group – and plans to sue the media giant!
Tribune Media has called off the planned $3.9 billion sale of 42 TV stations to the Sinclair Broadcast Group, saying the nation’s largest broadcast chain breached its contract by misleading regulators during the transaction’s approval process.
Chicago-based Tribune said Thursday it filed a lawsuit against Sinclair, seeking to recoup losses that occurred during the failed merger discussions “including but not limited to approximately $1 billion of lost premium to Tribune’s stockholders and additional damages in an amount to be proven at trial,” the complaint says.
The deal, announced in May 2017, would have given Hunt Valley, Maryland-based Sinclair, already the nation’s largest U.S. broadcaster, a total of 215 TV stations and a reach of 71 percent of U.S. homes.
But last month, the Federal Communications Commission voted unanimously to send the deal to an administrative law judge for review after FCC Chairman Ajit Pai said he had “serious concerns” that Sinclair could unlawfully continue to control some stations it divested to achieve the deal’s approval.
Sinclair’s planned transfer of three TV licenses raised “significant questions as to whether those proposed divestitures were in fact ‘sham’ transactions,” the agency said in its order to send the merger to the judge.
A transaction’s review by an administrative law judge can be lengthy and often signals the demise of a deal.
“In light of the FCC’s unanimous decision, referring the issue of Sinclair’s conduct for a hearing before an administrative law judge, our merger cannot be completed within an acceptable timeframe, if ever,” Tribune Media’s CEO Peter Kern said in a statement Thursday. “This uncertainty and delay would be detrimental to our company and our shareholders. Accordingly, we have exercised our right to terminate the Merger Agreement, and, by way of our lawsuit, intend to hold Sinclair accountable.”
In the latest move between the Federal Communications Commission and Sinclair, the FCC has accused the broadcast group of trying to deceive its regulators. Veuer’s Sam Berman has the full story.
Tribune charges Sinclair with misleading the FCC or acting “with a lack of candor,” during the process. “As elaborated in the complaint we filed earlier today, Sinclair’s entire course of conduct has been in blatant violation of the Merger Agreement and, but for Sinclair’s actions, the transaction could have closed long ago,” the company said.
Tribune Media shares were up 3 percent to $34.76 Thursday. Shares have declined 21 percent year to date.
Sinclair shares were down 2.2 percent Wednesday to $26.50. The stock price has fallen 27 percent so far this year.
The merger had attracted attention from the get-go because of how it would expand Sinclair’s historic reach into U.S. homes, the conservative bent of the media company’s owners and their habit of requiring local TV stations to run corporate messages.
In April 2017, Pai shepherded a change in the so-called UHF discount, which allows broadcasters to count UHF stations as having only half the reach of VHF channels. That rule change could help broadcasters buy additional stations and possibly remain under the FCC’s 39 percent reach rule.
Seven months later, state attorneys general in four states – Illinois, Maryland, Massachusetts and Rhode Island – announced opposition to the deal because Sinclair’s postmerger reach exceeded that 39 percent rule. Another concern of the regulators: a perceived coziness between Sinclair and the presidential campaign of then-candidate Donald Trump, with local stations forced to provide him favorable coverage.
Two Democratic congressmen revealed in February that the FCC inspector general was investigating the FCC chairman for his ties to Sinclair. The New York Times reported in August 2017 on a meeting between Pai and Sinclair Chairman David Smith in January 2017, a day before Trump’s inauguration and days before Pai was named FCC chairman.
Attention to Sinclair heightened in April when a viral video showing clips taken from on-air promotional messages with local news anchors at dozens of the broadcaster’s stations reading the same scripted message about “false news” on competing media outlets. That video was discussed on HBO’s “Last Week Tonight with John Oliver,” which had previously targeted Sinclair in July 2017 for its conservative-leaning practices and “must-run” video segments.
President Donald Trump recently skewered the FCC for its decision on Twitter. “So sad and unfair that the FCC wouldn’t approve the Sinclair Broadcast merger with Tribune,” he tweeted three weeks ago. “This would have been a great and much needed Conservative voice for and of the People. Liberal Fake News NBC and Comcast gets approved, much bigger, but not Sinclair. Disgraceful!”
Tribune Media also on Thursday posted profit of $84.4 million in the second quarter, compared to a $29.8 million loss in the period a year ago, beating expectations of analysts polled by S&P Global Market Intelligence.
In a statement accompanying the company’s financial release, Kern said, “Tribune Media is stronger than it has been in many years and is well positioned to maximize value for our shareholders.”
Follow USA TODAY reporter Mike Snider on Twitter: @MikeSnider.
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