FCC Asks If Sinclair ‘Engaged in Misrepresentation’ Over Tribune Merger

FCC review order puts $3.9 billion merger in peril

Last Updated: July 19, 2018 @ 11:46 AM

The Federal Communications Commission issued its order for a review of the Sinclair Broadcasting-Tribune Media merger on Thursday, putting the $3.9 billion deal in jeopardy.

The FCC questioned whether Sinclair “engaged in misrepresentation” in its divestiture plan from several stations, looking to appease U.S. regulators. The FCC’s filing questions whether Sinclair would have “de facto” control of stations in Houston, Dallas, and Chicago, despite its divestiture.

“We are unable to find, based upon the record before us, that grant of the applications would be consistent with the public interest,” the FCC said in its filing.

Thursday’s filing comes after FCC chairman Ajit Pai said he had “serious concerns” about the merger earlier in the week. Sinclair said it was “shocked” by the FCC’s reaction on Wednesday, and updated its divestiture plan.

The amended plan has Sinclair withdrawing its divestiture of stations in Dallas (KDAF) and Houston (KIAH), which were set to be sold to Cunningham Broadcasting. Sinclair will look for a new buyer for the stations via an independent trustee. Sinclair will also acquire WGN-TV in Chicago as part of a larger deal with Tribune, the company said.

At the heart of the FCC’s order is Sinclair’s February plan to sell WGN to a new company led by Steven Fader, who has ties to Sinclair executive chairman David Smith, for $60 million. The FCC called the deal “atypically favorable to the buyer” on Thursday. Sinclair’s unloading of WGN was meant to win its overall Tribune deal regulatory approval.

Instead, the FCC’s order refers the deal to an administrative law judge for a hearing — dealing a serious blow to the merger.

Sinclair’s stock is down about 2.5 percent to $26.72 a share heading into the closing bell on Thursday. Tribune was hit harder, falling nearly 6 percent to $32.13 a share.

Even before the deal faced uncertainty this week, the proposed Sinclair-Tribune merger has already had plenty of twists. Pai has been under investigation from the FCC’s inspector general since late last year. Investigator general David L. Hunt is looking into whether Pai spearheaded a rules change in 2017 in cahoots with Sinclair Broadcasting. The new rules allow media companies to increase the maximum amount of television stations they own.

The FCC pulled back on regulations against media consolidation in April 2017. Weeks later, Sinclair announced a nearly $4 billion deal to acquire Tribune Media — an acquisition that wouldn’t have been possible a month earlier. Sinclair owns more TV stations than any other company in the United States. The merger would allow Sinclair to bolster its lineup in dozens of markets, including New York and Chicago.

Sinclair pushed back on Wednesday, saying it has” fully disclosed all terms of all aspects of the transactions it has proposed.”

The station owner has been widely ridiculed for enforcing “must run” commentaries in its subsidiary stations’ broadcasts. Sinclair faced threats of an employee walkout and advertiser boycott in April over a video showing dozens of its news anchors robotically reading a company-mandated script bashing the media and echoing Trump talking points.

Earlier this year, Sinclair hired Trump White House alum Kaelan Dorr as its new executive political producer.

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