Tribune Terminates Sinclair Merger, Sues Broadcast Rival--4th Update
09 Agosto 2018 - 11:28AM
Noticias Dow Jones
By Joe Flint
Tribune Media Co. terminated its merger agreement with Sinclair
Broadcast Group and sued the rival TV-station owner, alleging it
failed to make sufficient efforts to get their $3.9 billion deal
approved by regulators.
Last month Federal Communications Commission Chairman Ajit Pai
said he had serious concerns about Sinclair's submissions as part
of the agency's review, and sent the matter to an administrative
law judge, a severe blow to the merger's approval chances.
The suit, filed in Delaware Chancery Court, seeks $1 billion of
lost premium to Tribune stockholders and additional damages.
Tribune alleges Sinclair breached the merger agreement by engaging
in "unnecessarily aggressive and protracted negotiations" with
regulators over their requirement that Sinclair divest stations in
certain markets to obtain approval. The deal structures that
Sinclair proposed -- which Tribune said were designed to allow it
to maintain control over stations -- created risks for the deal in
violation of the merger agreement, Tribune alleges.
The merger's collapse and the lawsuit mark a stunning turn of
events for a deal that when it was announced in May 2017 seemed to
have a strong chance of gaining regulatory approval.
"Our merger cannot be completed within an acceptable time frame,
if ever, " Tribune Media Chief Executive Peter Kern said in a
statement. "This uncertainty and delay would be detrimental to our
company and our shareholders."
Sinclair didn't immediately respond to a request for
comment.
During a call to discuss its quarterly earnings Wednesday,
Sinclair said it was continuing to work with Tribune to "analyze
approaches to the regulatory process that are in the best interest
of our companies, employees and shareholders."
After the FCC's move, Sinclair denied that it had done anything
to mislead the agency and said its proposed spinoffs were
"consistent with structures that Sinclair and many other
broadcasters have utilized for many years with the full approval of
the FCC."
Tribune could now be back in play. Other companies that were
pursuing it along with Sinclair included 21st Century Fox and
Nexstar Media Group Inc.
Media watchdogs had challenged the deal because of concerns that
it would put too many local television stations under one roof.
Sinclair owns more than 170 television stations in mostly midsize
and smaller markets, while Tribune has 42 stations in major
markets.
The issue that led the deal to hit a roadblock at the FCC was
the structure of Sinclair's proposals to spin off TV stations. Mr.
Pai, the FCC chairman, said evidence suggested that Sinclair's
spinoff proposals would still leave it in practical control of
those stations "in violation of the law."
In one proposal, Sinclair said it would sell Tribune's WGN-TV
Chicago to Steven Fader for $60 million. That price was seen as far
below the station's market value, and Sinclair Chairman David Smith
sits on the board of a car-dealership concern where Mr. Fader
serves as chief executive.
If Sinclair had maintained ownership of WGN-TV, the fees it
could charge for carriage of the station on pay-TV services would
be lower than the carriage fees WGN-TV could charge under an
independent owner, according to a person familiar with the
situation. Tribune believes Sinclair was aiming to structure the
transaction so that it could still receive the higher carriage
rates, the person said.
"Under these proposed arrangements, Sinclair would continue to
reap the lion's share of the economic benefits of the stations it
was purportedly `divesting' and would have an option to repurchase
the stations in the future," Tribune said in its suit.
Sinclair was given several opportunities to resubmit its spinoff
plans but none passed the bar with regulators. Mr. Pai expressed
concern about a possible lack of candor on Sinclair's part with
regard to the proposed transactions.
Tribune said in its suit that Sinclair had not told the FCC
about Mr. Smith's ties to Mr. Fader nor had it provided details
about other spinoff partners.
"They violated those obligations in spectacular fashion," said
Tribune General Counsel Eddie Lazarus on a call with analysts
Thursday.
The Sinclair-Tribune deal also triggered an investigation by the
Justice Department into whether station owners violated antitrust
law by sharing ad sales information that potentially could lead to
higher advertising rates.
Another casualty of the Sinclair-Tribune deal collapse is 21st
Century Fox's deal to acquire seven of the Tribune stations from
Sinclair for $910 million. Tribune said it had notified Fox it has
terminated that agreement. Tribune said no fees are payable by any
party.
21st Century Fox and Wall Street Journal parent News Corp share
common ownership.
Write to Joe Flint at joe.flint@wsj.com
(END) Dow Jones Newswires
August 09, 2018 12:13 ET (16:13 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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