Sinclair and Tribune Fall as FCC Slams TV Station Sale Plan

(Bloomberg) -- U.S. Federal Communications Commission Chairman Ajit Pai questioned the legality of a controversial plan by Sinclair Broadcast Group Inc. to sell TV stations in order to meet ownership limits as it buys Tribune Media Co., dealing a blow to their planned $3.9 billion merger.

“I have serious concerns about the Sinclair/Tribune transaction,” Pai said in a tweet. He proposed sending the question to an administrative hearing judge, something that can delay or even kill a deal.

Sinclair plunged the most since October 2009, dropping 12 percent to close at $29.10 in New York trading of 6.1 million, four times the three-month daily average. Tribune saw its biggest drop since January 2017, down 17 percent to close at $32.12 in trading of 13.1 million, 14 times the three-month daily average.

Ronn Torossian, a spokesman for Sinclair, said the company was “shocked and disappointed” by the FCC’s move. “We have been completely transparent about every aspect of the proposed transaction,” he said in an emailed statement.

Gary Weitman, a Tribune spokesman, declined to comment. Either party may terminate the merger if it isn’t completed by Aug. 8, Tribune said in a May 10 filing.

Pai’s move was a setback for Sinclair, a politically conservative broadcaster that’s seen as friendly to President Donald Trump. He has praised the company on Twitter, saying it’s superior to AT&T Inc.’s CNN and Comcast Corp.’s NBC. Pai, too, has been accused of favoring Sinclair. The FCC’s inspector general is said to be probing whether Pai improperly pushed for rule changes that helped clear the way for Sinclair’s Tribune bid, an allegation Pai denies.

Sinclair’s proposed sales of some stations “would allow Sinclair to control those stations in practice, even if not in name, in violation of the law,” Pai in an emailed statement Monday. Pai said he had asked his three fellow commissioners to vote to send the $3.9 billion deal to a hearing. Two did quickly did so, giving Pai’s proposal a majority.

Under Sinclair’s plan, flagship Tribune station WGN in Chicago would go to a car dealer who is a business associate of a top Sinclair executive, while outlets in Dallas and Houston would be sold to a company formerly controlled by the estate of the executive’s mother. Seven stations would go to 21st Century Fox Inc.

Lack of Candor

Pai, in his order, mentions possible misrepresentations or lack of candor by Sinclair regarding its proposed WGN sale, said an FCC official who spoke on condition of anonymity because the document isn’t yet public.

The order also questions ties between Sinclair and the proposed purchaser of the Texas stations, the official said.

Sinclair’s Torossian defended the arrangements on Monday. “We have fully identified who the buyers are and the terms under which stations would be sold to such buyer, including any ongoing relationship we would have with any such stations after the sales,” he said. “We have filed all relevant agreements documenting such terms as required by FCC rules.”

Still, the company is prepared to “resolve any perceived issues,” he said. “We look forward to working with regulators to make the merger a reality.”

Commissioner Jessica Rosenworcel, the agency’s sole Democrat, said she voted to send the merger to a hearing. “Too many of this agency’s media policies have been custom built to support the business plans of Sinclair Broadcasting,” Rosenworcel said in an email statement.

Brendan Carr, a Republican FCC member, likewise voted yes, said an FCC official who spoke on condition of anonymity because the tally hadn’t been made public. Michael O’Rielly, a Republican, issued a statement saying he was “inclined to support” sending the merger to hearing if there were “timelines.” O’Rielly in June criticized hearings before administrative law judge as “drawn out” and “a waste of time and resources.”

Sinclair, which grew from a single TV station in Baltimore in 1971, is trying to leap into nationwide prominence with the deal for 42 Tribune stations in cities such as New York. The purchase would lift Sinclair’s station total above 200. It’s being examined by the FCC and by antitrust regulators at the Justice Department.

The Trump administration also sought to block AT&T’s acquisition of Time Warner Inc. Though a judge allowed that deal to proceed, the Justice Department said last week that it would seek an appeal of the decision.

In Jeopardy

Just the threat of an FCC hearing, which can take months, can be fatal to a deal. In 2011, AT&T abandoned its proposed purchase of smaller T-Mobile US Inc. after the FCC proposed to send the merger to an agency judge for a hearing. The same move by the FCC in 2002 helped block EchoStar Communications Corp.’s acquisition of satellite-TV rival DirecTV.

“This delay may prove to be too much for Sinclair,” Paul Sweeney, a Bloomberg Intelligence analyst, said in an email. “Historically, Sinclair has been very successful pushing the edge of the envelope with the FCC. In this case, it looks like the FCC is prepared to shove back.”

Deal critics lauded Pai’s move and said it could kill the merger, which was proposed in May 2017.

“Republicans, Democrats and those that are concerned about the concentration of media power should join me in commending Chairman Pai,” Chris Ruddy, chief executive officer of Sinclair competitor Newsmax Media Inc., said in an emailed statement.

“Designating a transaction for a hearing is the FCC’s first step toward denying the deal,” Matt Wood, policy director for the policy group Free Press, said in an emailed statement.

‘Extremely Rare’

The FCC needs to give Sinclair a chance to make its case, “but it’s extremely rare for transactions to be sent to a hearing in the first place, much less for parties to fight it out and beat the FCC in that hearing,” Wood said.

Sinclair’s deal hinges on spinning off TV stations to comply with U.S. limits on broadcast ownership. Yet its proposals to sell stations from Pennsylvania to California drew scrutiny, with critics including business rivals say some of the transactions are designed to evade the ownership rules.

Sinclair has said the station buyers are independent businesses, and that it’s working diligently to follow the rules.

Criticism has come from groups including the American Civil Liberties Union, which in an FCC filing called the proposed deal “anti-competitive to its core.” The attorneys general of Illinois, Iowa and Rhode Island told the agency that “massive consolidation proposed in these applications violates the law.”

Among other things, Sinclair’s expansion would amplify the reach of its voices, including Boris Epshteyn, a former Trump aide whose commentaries run on its stations.

Once all its proposed purchases and sales are completed, Sinclair calculates it would reach almost 59 percent of the U.S. audience -- or less than 38 percent using a discount allowed under FCC rules. That snugs it up against the U.S. national cap of 39 percent.

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