Slap at Sinclair Seen as Turnabout From Friendly FCC Chief

(Bloomberg) -- Sinclair Broadcast Group Inc. thought it had a friend in Ajit Pai when he was appointed to lead the U.S. Federal Communications Commission.

“We’re very optimistic about this new FCC and the leadership of Ajit Pai,” Chief Executive Officer Christopher Ripley told investors in February 2017.

Slap at Sinclair Seen as Turnabout From Friendly FCC Chief

That optimism took a hit Thursday as the FCC sent Sinclair’s $3.9 billion proposed purchase of Tribune Media Co. to an administrative hearing that could take months -- long enough to potentially kill the deal.

The decision seemed an abrupt turnabout for Pai, a Republican chosen by President Donald Trump. Critics say he has gone out of his way to befriend Sinclair, known for its conservative views and admiration of the president. He even appeared at a Sinclair gathering in its hometown of Baltimore -- and he has mowed down media ownership rules the company opposed.

“For too long the FCC has twisted & bent its policies to serve the business plans of Sinclair Broadcasting,” FCC Commissioner Jessica Rosenworcel, the agency’s sole Democrat, said in a tweet Thursday. “As I’ve said before, this is not right. I’m glad my colleagues now agree & have supported halting the Sinclair-Tribune merger.”

Pai’s FCC has benefited Sinclair’s business model in several ways. The agency has loosened restrictions on broadcasters owning multiple stations in a market, and eliminated a requirement for them to keep a local studio. It’s also reduced scrutiny of how TV stations share services and revenue and is considering further easing broadcast ownership restrictions.

Democrats have complained and the FCC’s inspector general is probing whether Pai improperly pushed for rule changes that helped Sinclair -- an accusation the FCC called “absurd.” Republicans and the industry, on the other hand, have welcomed what they say are overdue steps to eliminate outmoded regulations.

With the Tribune merger under review last August, Sinclair’s Ripley told investors the “FCC has been very constructive in terms of its review.”

That view from the broadcaster’s corporate offices may have changed this week. On Monday, Pai, in his first public assessment of the deal, expressed criticism. The FCC order released on Thursday contained harsh language.

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

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

Both companies recovered from early losses Friday though still closed down for the week. Sinclair closed up 2.3 percent at $26.90 in New York trading. That left it down almost 18 percent for the week, its biggest weekly decline since August 2011. Tribune rose 1.7 percent to $33.05, leaving it down 14 percent from a week earlier.

Sinclair, which grew from a single television station in Baltimore in 1971, envisions the deal as an opportunity to bolster its nationwide presence with Tribune stations in major cities like New York and Chicago. The expansion would give a bigger platform for Sinclair’s conservative voices, including former Trump aide Boris Epshteyn. But there’s a problem. Sinclair already owns more stations than any other company, and the Tribune purchase would push it over 200 -- so many stations that divestitures would be needed to comply with the limits.

The FCC focused on several proposed divestitures, including Sinclair’s planned sale of WGN-TV in Chicago to a Maryland automobile executive who’s a business associate of Sinclair Executive Chairman David D. Smith.

“We question the legitimacy of the proposed sale of a such a highly rated and profitable station in the nation’s third-largest market to an individual with no broadcast experience, with close business ties to Smith, and with plans to own only the license and minimal station assets,” the FCC said.

Sinclair didn’t issue any statements; Tribune said it was assessing its options but called the order “troubling.”

“The chairman evaluates mergers based on the facts specific to each one,” Tina Pelkey, an FCC spokeswoman, said in an email. “The order clearly lays out the concerns the chairman had with the merger.”

Large and small cable providers oppose the merger, saying it would give Sinclair too much power to charge for its programming. Some conservative media outlets that compete with Sinclair for viewers also oppose the deal, and argued against creating a new media colossus -- in part because others might do the same.

“This is a danger to the Republican Party because this deal would open the door for the major networks, NBC, CBS, ABC, to buy a lot of stations in red states or swing states,” said Christopher Ruddy, chief executive officer of Newsmax Inc., which offers TV news for a conservative audience.

“I think Ajit Pai did the right thing and acted with independence and integrity,” Ruddy said. “It was not political and wasn’t something against Sinclair, it was based on the facts and the rules."

Ruddy, a friend of Trump’s, said he had mentioned his dislike of the deal several times in conversations with the president.

“He generally favored Sinclair. But he never got into the weeds with me on any action he was taking,” Ruddy said. “There shouldn’t be any implication that my conversations with him somehow influenced the commission. I have no indication it did."

Pai may have seen no upside to moving to approve a widely opposed merger, said Gigi Sohn, a former FCC official.

“What were the benefits? It doesn’t punch any particular ideology ticket for him, like net neutrality,” Sohn said. “He’s got the deregulation for the most part. Why do this?”

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