Tribune Mulls Next Steps After FCC Accuses Sinclair of Deception

(Bloomberg) -- Tribune Media Co. said it was assessing its options after regulators sent the company’s proposed $3.9 billion acquisition by Sinclair Broadcast Group Inc. to the uncertain future of a hearing.

The U.S. Federal Communications Commission released an order Thursday that accused Sinclair of misleading the agency and attempting to skirt ownership rules for television stations as it sought approval to buy Tribune.

Tribune called the order “troubling.”

“We are currently evaluating its implications and assessing all of our options in light of today’s developments,” the Chicago-based broadcaster said in a statement.

The FCC questioned whether Sinclair was in fact the hidden buyer in a proposal to sell Chicago’s WGN-TV to an automobile executive with no previous broadcast experience. The agency also questioned ties between Sinclair, which is based in Maryland, and a buyer proposed for stations in Dallas and Houston.

The planned station sales were set at what appeared to be below-market prices, and Sinclair was poised to remain in control of the properties despite the transactions, the FCC said. Sinclair had proposed divestitures to avoid exceeding ownership limits after buying Tribune’s 42 television stations.

“There is a substantial and material question of fact as to whether Sinclair affirmatively misrepresented or omitted material facts,” the FCC said in an order that assigns the deal, which was first proposed last year, to a hearing before a FCC administrative law judge.

The agency asked whether Sinclair had “attempted to skirt the commission’s broadcast ownership rules.”

Hearings have been a death knell for other deals because they can freeze companies in place with no resolution, possibly for months.

Stocks Fall

Tribune fell 4.7 percent to close at $32.49 in New York trading, leaving the stock down 21 percent just this week. It could be the biggest monthly drop since January 2017. Sinclair was down 4 percent to $26.30 after earlier reaching a 52-week low of $25.98. Shares have fallen almost 21 percent this week, on pace for the biggest one-week drop since 2009.

"We will be greatly disappointed if the transaction cannot be completed, but will rededicate our efforts to running our businesses and optimizing assets,” Tribune said in its statement. Sinclair didn’t respond to a request for comment.

Sinclair, which grew from a single TV station in Baltimore in 1971, is trying to leap into nationwide prominence with the deal for Tribune stations in cities such as New York and Chicago. The purchase proposed last year would lift Sinclair’s station total above 200.

Sinclair withdrew the Texas and Chicago sales after FCC Chairman Ajit Pai on Monday said the transactions may not be lawful. To little avail.

There are “significant questions” about whether the station sales “were in fact ’sham’ transactions,” the FCC said in the order released Thursday.

For instance, Steven Fader, who was slated to buy WGN, is chief executive officer in a business controlled by Sinclair’s executive chairman, the FCC said.

Questions on WGN Sale

Sinclair would have owned most of WGN’s assets, would have been responsible for station operations, and Sinclair would have an option to buy the station back. In addition, Fader would have bought WGN for $60 million -- a price that appears to be “highly discounted” compared with a $425 million station sale in Chicago in 2002, the FCC said.

“Such facts raise questions about whether Sinclair was the real party in interest under commission rules and precedents and attempted to skirt the commission’s broadcast ownership rules,” the FCC said in the order.

Stations KDAF in Dallas and KIAH in Houston were slated to be sold to Cunningham Broadcasting Corp., a company with a relationship with Sinclair stretching back at least 20 years, the FCC said.

“The close relationship between Sinclair and Cunningham could explain how Cunningham was able to able to execute an agreement to purchase stations KDAF and KIAH at what appear to be below-market prices,” the FCC said. “Thus, discovery and a hearing are necessary to determine the relationship.”

The administrative law judge is to set a completion date for hearing, according to the order.

Commissioner Michael O’Rielly, a Republican who’s been critical of the hearing process as unfair to companies sent into it, had asked for "defined timelines" before he would support the hearing.

“This is what some may refer to as an initiation of a hint of due process,” he said in a statement. “I realize that many merger applicants will be unable to withstand the market pressures to end transactions long before any such timelines are established or exhausted.”

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