Sinclair Broadcast may have little room to grow

Collapse of merger, pending lawsuit could limit expansion efforts

After the collapse of its long-planned acquisition of Tribune Media, Sinclair Broadcast Group is expected to have its hands full defending itself against both a $1 billion lawsuit filed by its former merger partner and allegations it misrepresented itself before federal regulators.

In the short term, the Hunt Valley-based broadcaster may have little wiggle room to further solidify its current position as the nation’s largest owner of local television stations, and, some say, may even struggle to keep that top ranking.

But some observers expect to see little change in the company’s long-term goals, aiming to create a broadcasting giant with national reach and make the most of a regulatory environment during the Trump presidency that has been friendly to media consolidation.

“We’re not just tying this up in a nice bow and saying, ‘OK, the merger is off. Everything looks good,’ ” said Carli Stevenson, a campaigner with Demand Progress, a Washington-based nonprofit that says it focuses on civil liberties and government reform, and opposed the merger.

Many opponents who fought to stop the merger, citing concerns over loss of broadcast diversity given Sinclair’s conservative leanings, say they are carefully watching the company’s next steps.

Sinclair, which declined a request to comment, has said the scale and efficiencies that would have come from the merger would have let it put more resources into local news programming and ensured the future of free over-the-air-television.

The deal fell apart Aug. 9 after Tribune pulled out then sued Sinclair for breach of contract. Under the deal announced in May 2017, Sinclair planned to buy Chicago-based Tribune and its 42 stations for $3.9 billion. It would have given Sinclair control of 233 stations, reaching 72 percent of U.S TV households, and a presence in such top markets as New York and Chicago. (Tribune Media was formerly part of Tribune Co., which once owned The Baltimore Sun and other newspapers, but spun them off in 2014.)

Now, Sinclair is likely to consider other avenues for continued growth, some say.

Pam Vogel, research fellow for Media Matters, called the end of the deal with Tribune a “victory for those who want local news to stay truly local,” but said Sinclair is still gearing up in other ways to expand its presence in conservative news.

Last month, BuzzFeed reported that Sinclair plans to start a streaming TV service called STIRR that would include roundthe-clock local news and national programming and allow the company to better compete with cable channels such as Fox News.

“Sinclair’s behavior in the whole process shows that what they really want is to be this mammoth media company that will compete with the likes of Fox News,” Stevenson added. “I think it’s clear they want to gobble up as many local broadcasters as possible.”

Such moves may be unlikely anytime soon because of the uncertainty Sinclair faces on several fronts, said Nils Tracy, financial analyst for Event Driven at Reorg Research, which provides analysis on mergers and acquisitions.

The outcome of the Tribune $1 billion lawsuit is unknown and it’s unclear if regulators will pursue matters that derailed the merger in the first place, including whether or not Sinclair misled the Federal Communications Commission about the relationship between the company and buyers of stations it was required to divest.

Big acquisitions are likely out of the questions, while smaller acquisitions would depend on shareholders’ appetite for spending and potential sellers’ willingness to form partnerships, Tracy said.

“It depends a little bit on shareholders’ willingness to spend money, if they’re worried they’re going to have to pay out to Tribune as a result of this,” he said.

A payout of the full $1 billion in damages seems unlikely, Tracy said, but “even if they got half of that it would be detrimental to Sinclair, with a real possibility of bankruptcy.”

Opponents of the merger had complained that Trump appointee and FCC chairman Ajit Pai had paved the way for Sinclair and its conservative editorial voice by loosening ownership regulations. The sheer size of the combined Sinclair-Tribune had sparked concerns about a loss of diverse voices in broadcasting and the precedent it might set.

In a surprising move last month Pai raised “serious concerns,” about the deal being in the public interest. The commission sent the merger for review by an FCC administrative hearing judge, viewed as a death knell for such mergers. President Trump then weighed in, tweeting about the unfairness of the FCC’s failure to approve the deal.

Now that the deal is off the table, some are calling for the FCC’s review to go forward anyway. Former FCC Chairman Tom Wheeler argued in a blog post last week that Sinclair has a right to establish that that they did not engage in “misrepresentations and/or lack of candor” as alleged by the FCC and the public has a right to get to the bottom of unanswered questions. Demand Progress’ Stevenson agreed. “It’s incumbent on the FCC to protect the process,” Stevenson said.

Sinclair has denied the allegations, saying it engaged in “ongoing and constructive dialogue” about its plans with the FCC for a year, identifying buyers and ongoing relationships with the stations after the sales. Company officials said last month they were shocked by the FCC’s concerns.

A day before the breakup with Tribune, when the deal appeared derailed but was not yet dead, Sinclair CEO Chris Ripley told analysts that the company’s appetite for further acquisitions had not changed. Ripley’s comments were made before the company was hit with the Tribune lawsuit, which condemned Sinclair’s conduct with regulators, saying the broadcaster tried to sidestep the need to sell stations.

Sinclair has said the Tribune suit is “entirely without merit, and we intend to defend against it vigorously.”

How much the industry consolidates may depend on whether the FCC continues changing rules that would benefit large TV owners, such as, for example, by raising the national TV ownership cap. It now allows station owners to reach no more than 39 percent of television households.