Business

Tribune ends deal with Sinclair, dashing plan for conservative TV behemoth

Ajit Pai, the FCC chairman, said he had “serious concerns” about Sinclair’s purchase of Tribune’s local TV stations. It would have created a broadcaster that could reach 7 out of 10 US households.
Tom Brenner/New York Times
Ajit Pai, the FCC chairman, said he had “serious concerns” about Sinclair’s purchase of Tribune’s local TV stations. It would have created a broadcaster that could reach 7 out of 10 US households.

NEW YORK — The Sinclair Broadcast Group’s plan to create a conservative television behemoth to rival Rupert Murdoch’s Fox News died 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 7 out of 10 US 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.

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In a statement Thursday that accompanied its second-quarter earnings report, 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.

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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.”

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 FCC 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.

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But last month, the FCC chairman, Ajit Pai — who is the subject of an investigation by 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. 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.

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.”

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.

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.

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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.

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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 Murdoch completes his deal to sell most of the assets of his 21st Century Fox to The Walt Disney Co., 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.