Tribune Media walked away Thursday from its $3.9 billion merger with the conservative Sinclair Broadcast Group, which counts President Trump among its fans, and is suing its one-time suitor for breach of contract.
According to Tribune, Sinclair used “unnecessarily aggressive and protracted negotiations” with federal agencies concerning regulatory requirements, and didn’t cooperate with the Justice Department’s request to sell off some stations in order to receive approval. Tribune is seeking $1 billion in damages in Delaware Chancery Court.
[Read: Sinclair, TV station owners under scrutiny from DOJ for advertising practices: Report]
“Since announcing the transaction in May of last year, we’ve done everything we could to assist Sinclair in getting through the regulatory process, and it’s been a huge undertaking for our company to manage through this prolonged exercise while also keeping our business running strong,” Tribune Chief Executive Officer Peter Kern told analysts on a call Thursday. “Unfortunately, Sinclair chose to follow a regulatory strategy reflecting its own self-interest rather than its contractual obligations.”
Federal Communications Commission chairman Ajit Pai said earlier this year he had “serious concerns” about the deal and, along with other commissioners, voted to send the issue to an administrative law judge. Both Tribune and Sinclair said the move would have resulted in a protracted timeframe for regulatory approval, which might never have come; Trump himself previously criticized the FCC for depriving the public of a badly-needed conservative voice.
So sad and unfair that the FCC wouldn’t approve the Sinclair Broadcast merger with Tribune. This would have been a great and much needed Conservative voice for and of the People. Liberal Fake News NBC and Comcast gets approved, much bigger, but not Sinclair. Disgraceful!
— Donald J. Trump (@realDonaldTrump) July 25, 2018
Sinclair CEO Chris Ripley denied Tribune’s allegations about its behavior during the merger, arguing that his company worked “tirelessly” to complete the deal.
“We fully complied with our obligations,” Ripley said in a statement. “We are extremely disappointed that after 15 months of trying to close the Tribune transaction, we are instead announcing its termination.”
Tribune and Sinclair, both embroiled in antitrust lawsuits, have been accused of violating antitrust laws and working together to drive up local television and advertising prices. Chicago-based Tribune climbed 2.9 percent to $34.60 in New York trading after abandoning the merger. Sinclair, based in Hunt Valley, Md., rose 2.6 percent to $27.80.
Tribune remains open to mergers, Kern told analysts, but is emphasizing its strengths in broadcast and cable in the meantime and examining opportunities in digital markets where it has a competitive edge.
“What transpired was not the function of an unwelcoming regulatory environment,” he said. “We feel like the environment remains welcoming and open to sensible consolidation. And there is tons of activity out there, as you well know.”
Indeed, Tribune argues in its lawsuit that Sinclair could have obtained Justice Department approval for the deal simply by selling 10 television stations in markets where both companies had properties — which Sinclair had already committed to doing in the terms of the merger agreement.
The contract “required Sinclair to agree to divestitures to avoid even the threat of any proceeding or order relating to regulatory review,” Tribune said. “Instead, Sinclair fought, threatened, insulted, and misled regulators in a misguided and ultimately unsuccessful attempt to retain control over stations that it was obligated to sell.”
Indeed, at one point in talks, Sinclair representatives told Assistant Attorney General Makan Delrahim — who leads the antitrust division — that he was “more regulatory” than any recent predecessor, the lawsuit claimed. “In meetings with the Department of Jusitce, Sinclair invited litigation over station divestitures, summarizing its position to DOJ in two words: ‘sue me.’”
Indeed, Sinclair went so far as to threaten to file its own lawsuit against the Justice Department, the suit alleges, the polar opposite of what it had promised
The merger breakdown leaves Sinclair with a “reputational black eye,” said Barton Crockett, an analyst with Los Angeles-based B. Riley FBR, and “is likely to make other sellers think twice about choosing Sinclair as a buyer.”
Because of that, the company’s decision to put as much as $1 billion of its excess cash toward share repurchases makes sense, Crockett said.
“Sinclair certainly seems to be putting its money where its mouth is in the statement that it sees the suit as meritless,” he said. “The company won’t sit on excess capital.”
