Sinclair hits sudden, surprising opposition

Vocal protests may have helped raise doubts about mega-merger

Sinclair Broadcast Group looked close to sealing its drawn-out, controversial deal to acquire rival broadcaster Tribune Media when an apparent derailment of the mega-merger came from an unlikely player — the seemingly friendly head of the Federal Communications Commission.

Despite taking longer than expected under a pro-business FCC, one that had been loosening what broadcasters view as antiquated TV ownership rules, the $3.9 billion deal was on track to close soon after July 12, Sinclair executives told shareholders at an annual meeting last month.

Shareholders applauded the deal’s expected boost to the company’s value and stock, while outside the Hunt Valley headquarters protesters demanded a stop to a merger that would cement Sinclair’s spot as the nation’s largest broadcaster and give it an even bigger platform to air conservative views.

Last week, in a twist that stunned both company executives and detractors on both sides of the political aisle, the merger suddenly foundered.

FCC Chairman Ajit Pai, an appointee of President Donald J. Trump who has been viewed as friendly to Sinclair and such a merger, raised “serious concerns” Monday about whether the deal would serve the public interest. By Thursday, even after Sinclair withdrew some station sales, the FCC issued an order sending the deal to an administrative law judge at the agency, a move viewed by some as a death knell for such mergers. The commissioners questioned a divestiture plan that could leave Sinclair with too much control over stations in Chicago, Dallas and Austin. Tribune began to assess its options.

“In light of the ongoing and constructive dialogue we had with the FCC during the past year, we were shocked that concerns are now being raised,” Sinclair said Wednesday in a statement. The company has not commented publicly since then.

Some wondered whether Sinclair Broadcast overstepped itself, ruffling the wrong feathers by assuming it would get its way. Others said they believe vocal opposition became too loud to ignore, shedding light on long-allowed but controversial arrangements allowing broadcasters to maintain control of stations they no longer own. A few speculated about behind-the-scenes influence from rival Fox Broadcasting owner Rupert Murdoch.

The FCC’s move came out of left field, some stock analysts said.

“I didn’t see that coming,” said Tuna Amobi, CFRA Research senior analyst, one of several analysts who said the deal seemed even more certain after Fox Broadcasting agreed in May to buy seven stations from Sinclair as it sought regulatory approval. “From all indications, we were leaning toward having that deal close pretty soon. … Ultimately, it appeared that the criticisms were just too much to ignore.”

“Sinclair was always viewed as one of those station groups that is politically savvy and connected, especially within Republican circles, which is why this came as a surprise to us,” said Amobi, whose firm downgraded Sinclair’s stock from buy to hold.

Sinclair’s acquisition of Tribune, as originally announced in May 2017, would give Sinclair control of 233 TV stations, including 42 Tribune-owned stations and a presence in such top markets as New York and Chicago. Under that proposal, Sinclair stations would reach 72 percent of U.S TV households. (Tribune Media was formerly part of Tribune Co., which once owned The Baltimore Sun and other newspapers, but spun them off in 2014.) To stay under the national TV ownership cap, Sinclair had proposed shedding 23 stations, including 14 owned by Tribune and nine of its own.

The sheer size of the combined SinclairTribune sparked opposition from those worried about a loss of diverse voices in broadcasting and the precedent it might set.

The prolonged attention to that outcry may have prompted scrutiny that led to the administrative hearing referral, said Michael Copps, a former FCC commissioner who opposed media consolidation and now serves as a senior adviser to Common Cause, an opponent of the Sinclair deal.

“There was a tremendous public outcry against this merger,” Copps said. “How much influence it had on Ajit Pai, I don’t really know. I think public outcry did make a difference.”

Copps served on the FCC from 2001 to 2011.

“Sinclair was building its empire then,” he said. “They liked to work beneath the radar, and a lot went on without public attention … always pushing to the maximum of the rules and regulation and going beyond the spirit of those regulations. … No one company should have that much reach and that much power in our media environment that Sinclair would have had under this deal.”

David Goodfriend, an attorney who has fought against mergers for two decades, said he has never seen such a diverse range of political views among opponents.

“The number and variety of opponents to the merger were staggering,” said Goodfriend, chairman of the nonprofit consumer advocacy group, Sports Fans Coalition, which opposed the Sinclair/ Tribune merger, and a former legal adviser at the FCC.

But he also believes Sinclair fell short in promoting the public interest benefits of the transaction, while asking for a level of airwave ownership that violates current law.

At the same time, there has been increased scrutiny into whether Sinclair stood to benefit from recent FCC deregulation. The FCC’s inspector general is investigating whether Pai used his position to benefit the broadcaster, in part by reinstating the so-called UHF discount, which counts some TV stations less in calculating the reach of a single broadcast owner.

"For too long the FCC has twisted & bent its policies to serve the business plans of Sinclair Broadcasting," FCC Commissioner Jessica Rosenworcel, the agency's sole Democrat, said in a tweet Thursday. "As I've said before, this is not right. I'm glad my colleagues now agree & have supported halting the Sinclair-Tribune merger."

The FCC questioned Sinclair’s nowwithdrawn application to transfer Tribune’s WGN-TV in Chicago to Steven Fader, who has no experience in broadcasting. Fader is CEO of Atlantic Automotive Corp., a holding company for MileOne Autogroup, in which Sinclair’s executive chairman has a controlling interest.

Sinclair would have owned most of WGN’s assets and been responsible for many aspects of its operations, the FCC order said. Additionally, the FCC said, Fader would have purchased the station for a price that appeared to be far below market value, and Sinclair would have had an option to buy back the station in the future.

The FCC order also flagged proposed sales of Sinclair-owned KDAF in Dallas and KIAH in Houston to Cunningham Broadcasting Corp., a Baltimore-based broadcaster with ties to Sinclair.

The company has denied misleading the FCC, saying in two statements since Monday that it had been transparent about all aspects of the deal, identifying buyers and ongoing relationships with the stations after the sales.