Tribune Media snuffed out its merger deal with Sinclair Broadcasting, terminating the deal Thursday and simultaneously filing suit in Delaware Chancery Court claiming Sinclair breached its contract.
Tribune is seeking $1 billion in damages, according to the suit.
The termination ends what has been a year-long journey for both companies. Sinclair announced the $3.9 billion deal in May 2017. The combination would have made Sinclair, already the largest TV station group in the country even more powerful, with more than 200 stations and covering over 70% of the country. But it was that bulk that ultimately did the deal in.
The Federal Communications Commission was in the process of scheduling hearings into a Sinclair proposal to divest three stations to entities it would ultimately control, which the agency called possible sham transactions. Sinclair later said it would place two of those stations in a trust for later sale to third parties, and decided to keep the other – WGN in Chicago – as part of the deal.
Tribune’s decision to scrap the merger comes as a bit of a surprise. Yesterday, in its Q2 earnings conference call, Sinclair said it was continuing talks with Tribune to work out a deal. The deadline to close the transaction was Aug. 8, but it appeared that the two could extend that date to work out an agreement.
That apparently wasn’t in the cards.
In a statement, Tribune said although Sinclair had pledged to use its “reasonable best efforts to obtain regulatory approval as promptly as possible,” instead it engaged in an “unnecessary and aggressive” battle with regulators over station divestitures, refused to sell stations in certain markets and created aggressive divestiture structures and third-party sales that either were rejected or posed a high risk of rejection by regulators.
“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 CEO Peter Kern said in a statement. “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.”
Sinclair officials did not return requests for comment.
The termination could mean that Tribune is back in play, and several other station groups have been aggressively adding properties through deals in recent months, including Gray TV, and Nexstar Broadcasting Group.
“This morning’s course of action should not be a surprise to investors who have been following the saga, but clearly the prospect of Tribune agreeing to see the administrative hearing process through (presumably in exchange for some form of ‘sweetener’ from Sinclair) is off the table and Tribune begins the next chapter of its history as a standalone entity (for how long, remains unclear),” said Evercore ISI broadcast analyst David Joyce in a note to clients.
In a statement, Free Press CEO Craig Aaron said the termination was good for consumers.
“The collapse of the merger is great news for dozens of local communities that will be spared Sinclair’s slanted coverage and ridiculous must-runs," Aaron said in a statement. "For years, Sinclair has been a dishonest broker at the FCC, using fuzzy math and sketchy shell companies to evade the agency’s rules and expand its empire. Its history of deceit and arrogant approach to the agency finally caught up with Sinclair. The broadcast giant's double-dealing became too much for Tribune executives to bear. As details of Sinclair’s deceptions emerge — and with other investigations underway a the Department of Justice — it’s reasonable to question whether the broadcaster deserves to hold any licenses to profit off the public airwaves.
“Hopefully, FCC opposition to this deal is the start of a trend in favor of more independent voices and local choices for news," Aaron continued. "The FCC majority’s recent gutting of media ownership limits suggests otherwise. The demise of this deal presents an opportunity to embark on a new path, an opportunity that will be squandered if these stations were to be simply served up to other giant conglomerates.”
Other consumer and trade groups were equally pleased with the outcome.
American Cable Association CEO Matt Polka said the termination is god news for cable operators as well as consumers.
"Tribune's decision to pull the plug on the Sinclair merger is great news for consumers who will avoid paying the higher pay-TV rates the deal would have caused," Polka said in a statement. "It is especially great news for those consumers served by smaller video providers that have been victimized in the past by outrageous retransmission consent fee hikes and scurrilous signal blackouts by large corporate broadcasters.
"All along, ACA insisted that the proposed Sinclair-Tribune deal would result in harm to the public stemming from higher retrans fees and higher consumer prices," Polka continued. "Sinclair's illusory 'sales' served only to magnify these harms. Few predicted the collapse of the Sinclair-Tribune deal when it was first announced. ACA is pleased that others joined us in refusing to yield to conventional wisdom and continuing to challenge an obvious attempt by Sinclair to subordinate the public interest to its quest to obtain TV station ownership hegemony."
At Common Cause, former FCC commissioner and special adviser to the consumer group Michael Copps said the demise of the deal was due in large part to grass roots efforts to block it.
“Good riddance to a really bad deal that would have given Sinclair an unprecedented amount of control of our local media. Broadcasters are supposed to serve the needs of the communities where they operate," Copps said in a statement. "But Sinclair has shown its only interest is taking over as many local stations as possible to become a national network at the expense of local programming and diverse viewpoints. In the end there was massive opposition from all sides, which demonstrated Sinclair’s merger was clearly not in the public interest.
"The strongest impact came at the grassroots level. Hundreds of thousands of people, including over 50,000 Common Cause members, called on the FCC to block Sinclair’s merger," Copps continued. "It’s their victory and shows Americans want a media system that promotes local, diverse, and independent journalism. But Sinclair will be back with more deals, as will other media giants. At a time when we need more independent and diverse voices in our media, we must all stay vigilant and engaged.”