Tribune Ends Deal With Sinclair, Dashing Plan for Conservative TV Behemoth  8/9/2018 2:01:29 PM   Edmund Lee and Amie Tsang
Ajit Pai, the chairman of the Federal Communications Commission, has said he had “serious concerns” about a merger of Tribune Media and The Sinclair Broadcasting Group.CreditTom Brenner/The New York Times

The Sinclair Broadcast Group’s plan to create a conservative television behemoth to rival Rupert Murdoch’s Fox News died on Thursday with the announcement by Tribune Media that it was ending its merger agreement with Sinclair and would sue for breach of contract.

Sinclair, already the largest operator of local TV stations in the United States, had agreed to buy Tribune Media last year for $3.9 billion in a deal that would have created a company that could reach seven out of 10 American households.

But the Federal Communications Commission questioned whether Sinclair had been sufficiently transparent with regulators about its plans to complete the deal and whether the transaction was in the public interest.

In a statement on Thursday, Tribune said that Sinclair had not made good on its commitment to use its best efforts to obtain regulatory approval of the merger as quickly as possible by selling off TV stations and other assets. Instead, Tribune said, Sinclair tried to maintain control and engaged in “unnecessarily aggressive and protracted negotiations with the Department of Justice and the Federal Communications Commission.”

“The uncertainty and delay would be detrimental to our company and our shareholders,” Peter Kern, Tribune’s chief executive, said in the statement, which accompanied the company’s second-quarter earnings report.

The agreement between Sinclair and Tribune had allowed either to walk away if the deal did not close by Aug. 8. Tribune said in its statement that it would seek compensation for all losses incurred from what it called Sinclair’s breach of the agreement, an amount it pegged at more than $1 billion.

Sinclair did not immediately respond to requests for comment.

The deal’s official demise is a stunning turn for Sinclair, a favorite of President Trump. The company, known for its deeply conservative views, has insisted that of all its stations run regular commentary segments that echo Trump administration policies.

Sinclair has close ties to other important figures in Washington, and the merger originally seemed almost assured of being completed, thanks in part to policy changes proposed or enacted by the F.C.C. and pushed for by Sinclair. The changes included an easing of the cap on how many stations a broadcaster may own and a relaxing of a restriction on advertising revenue and other resources shared by TV stations.

But last month, the F.C.C. chairman, Ajit Pai — who is the subject of an investigation by the office of the commission’s inspector general regarding policy changes that were beneficial to Sinclair — said he had “serious concerns” about the broadcaster’s deal with Tribune. Mr. Pai asked the agency’s four commissioners to hand off its review of the merger to an administrative law judge to determine the legality of Sinclair’s proposal.

Mr. Trump called that move “Disgraceful!” and added that the combined company “would have been a great and much needed Conservative voice for and of the People.”

To satisfy rules that prohibit one company from owning the airwaves on such a dominant scale, Sinclair had proposed selling 23 television stations after the deal was completed. But under the proposal, several of the stations would still have effectively fallen within Sinclair’s operational control — a fact that the commission said raised “significant questions as to whether those proposed divestitures were in fact ‘sham’ transactions.”

In extending Sinclair’s presence to 70 percent of households in the United States, the deal would have given the broadcaster access to major markets like Chicago, Los Angeles and New York. Consumer and media groups raised alarm over such a high degree of consolidation in a single broadcast group.

The disintegration of the deal between Sinclair and Tribune upended another pending transaction: Sinclair’s agreement to sell seven Tribune-owned stations to 21st Century Fox for $910 million as part of the effort to satisfy regulators. Tribune has terminated that sale because it was contingent on the merger with Sinclair.

Tribune must now revisit its plans for selling itself, although the company may not have much trouble seeking new buyers. Local television businesses have gotten a boost from political advertising spending in the run-up to the hotly contested midterm elections. Tribune’s second-quarter earnings report showed that the company had more than doubled its revenue from political advertising to $24 million compared with the same period in 2014, the last midterm election cycle.

The boom in political ad spending, coupled with the rule that allows one company to reach a much larger swath of the television audience, could jump-start more mergers.

After Mr. Murdoch completes his deal to sell most of the assets of his 21st Century Fox to The Walt Disney Company, he will be left with the Fox News cable network and 28 Fox broadcast stations. In a bid to expand his broadcast business, he could restart talks with Tribune to buy the seven stations whose sale was previously agreed to, or possibly more.

Follow Edmund Lee and Amie Tsang on Twitter: @edmundlee and @amietsang.

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