Tribune Media Downside May Be Limited If Sinclair Deal Breaks

(Bloomberg) -- Tribune Media Co. downside is likely limited if either Sinclair Broadcast Group Inc. or Tribune walks away from the deal, as most of the risk is already reflected in the shares after the FCC rejected the deal last month. Today is the “walk date” for the transaction, where the parties can choose to exit the deal.

Tribune’s stand- alone value is probably $35 a share, United First Partners legal analyst Anna Pavlik wrote in a note on July 20, saying she saw a 90% probability of a deal break. Jefferies analyst John Janedis sees downside to $30 in a deal break, according to a July 17 note, while Stephens analyst Kyle Evans cut his price target on Tribune to $37 from $41 on July 19.

Tribune traded at about $35 in late February 2017 before Reuters reported Sinclair’s interest. Analysts expect Sinclair to withdraw as the FCC’s move to put the transaction in front of an FCC administrative law judge is “purgatory’ for the deal, UFP’s Pavlik said. Pavlik expects the ALJ to rule against the parties, especially in light of allegations of misconduct. Sinclair declined to comment on the status of the Tribune transaction in its earnings conference call Wednesday.

Tribune downside may also be supported by other potential bidders for the company. The proxy revealed there was a four-month bidding war before Sinclair made its $43.50 cash and stock offer, Evercore ISI analyst David Joyce wrote in a July 30 report attaching a $40 target on the stock. Nexstar Media Group Inc. countered five times, and six other broadcast groups and six PE funds were also involved in talks, according to the proxy.

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