Sinclair Broadcast Group’s proposed $3.9 billion purchase of Chicago-based Tribune Media may be in jeopardy after Federal Communications Commission Chairman Ajit Pai issued a statement Monday expressing “serious concerns” about the deal.
“The evidence we’ve received suggests that certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law,” Pai said in the statement. “When the FCC confronts disputed issues like these, the Communications Act does not allow it to approve a transaction.”
Pai suggested referring the disputed issues to an administrative law judge for a hearing.
Hunt Valley, Md.-based Sinclair agreed to buy Tribune Media’s 42 TV stations in May 2017, creating what would be the largest ownership group in the U.S. with 233 stations. Sinclair agreed to sell off a number of stations to comply with FCC ownership restrictions, but Pai’s memo questions the company’s plans to continue controlling several divested stations through so-called sidecar agreements with third parties. The plan for Tribune-owned WGN-Ch. 9 in Chicago may be the most prominent of those deals.
A Maryland auto dealer agreed to buy WGN-TV for $60 million in February as part of the divestiture plan. Critics say the station would essentially remain in the Sinclair fold through a services agreement that would keep it in charge of everything from programming to ad sales.
The licensee of WGN would be a newly formed company headed by Steven Fader, a longtime business associate of Sinclair Executive Chairman David Smith. Sinclair would have an option to buy back the station for the same price, subject to adjustments, within eight years.
The proposed Sinclair-Tribune Media merger has faced a groundswell of opposition from liberal groups and media watchdogs over concerns that Sinclair’s right-leaning editorial views would unduly influence local news at Tribune’s stations. Others have objected on the basis of media concentration.
Sinclair issued a statement Monday evening saying it was “shocked and disappointed” by Pai’s announcement.
“While we understand that certain parties which oppose the transaction object to certain of the buyers based on such buyers’ relationships with Sinclair, a situation we are prepared to address if the FCC agrees with such views, at no time have we misled the FCC in any manner whatsoever with respect to the relationships or the structure of those relationships proposed as part of the Tribune acquisition,” the company said. “Any suggestion to the contrary is unfounded and without factual basis.”
Tribune Media spokesman Gary Weitman declined to comment Monday.
While the deal was facilitated by the FCC’s easing of ownership restrictions last year under Pai’s leadership, it still exceeds a 39 percent national audience cap. Sinclair filed several divestiture amendments, but the proposed sidecar arrangements — a strategy the company has used in past acquisitions — may not pass muster with federal regulators.
Sinclair and Tribune Media defended the shared services agreements in an FCC filing earlier this month, saying they are consistent with agreements “that have been routinely approved by the FCC over a more than ten-year period.”
In his memo Monday, Pai said: “The law requires the FCC to designate the transaction for a hearing in order to get to the bottom of those disputed issues. For these reasons, I have shared with my colleagues a draft order that would designate issues involving certain proposed divestitures for a hearing in front of an administrative law judge.”
President Donald Trump appointed Pai as FCC chairman in January 2017. The FCC’s inspector general reportedly launched an investigation late last year into whether Pai relaxed ownership rules specifically to benefit Sinclair’s bid to acquire Tribune Media.
Karl Frisch, executive director of Allied Progress, a Washington, D.C.-based liberal advocacy organization that has opposed the merger, issued a statement Monday welcoming Pai’s memo.
“When Sinclair has been forced to sell stations during previous mergers, it has routinely sold them to family and friends and then signed agreements to control the programming on those stations,” Frisch said. “The FCC is right to call out this scheme.”
FCC Commissioner Jessica Rosenworcel, a Democrat, also issued a statement in support of Pai’s memo Monday.
“Today’s announcement is welcome,” Rosenworcel said. “As I have noted before, too many of this agency’s media policies have been custom built to support the business plans of Sinclair Broadcasting. With this hearing designation order, the agency will finally take a hard look at its proposed merger with Tribune. This is overdue and favoritism like this needs to end.”
Sinclair executives hoped to receive FCC approval and close the deal by early third quarter, but Monday’s plan to refer the application to an administrative law judge is likely to substantially delay or even derail the acquisition.
In 2015, Comcast’s proposed $45 billion merger with Time Warner Cable, which was also met with vociferous opposition, was withdrawn after the FCC recommended the transaction go before an administrative law judge.
AT&T’s proposed $39 billion merger with T-Mobile USA was abandoned in 2011 after the FCC took similar steps.
Tribune Co. in 2014 spun off its publishing division, including the Chicago Tribune and other newspapers, into a separate company now known as Tronc. Under the banner Tribune Media, it retained the company’s broadcast and real estate assets.
In addition to WGN, Tribune Media owns or operates stations including KTLA-TV in Los Angeles and WPIX-TV in New York. The company also owns Chicago radio station WGN-AM 720 and national cable channel WGN America.
Twitter @RobertChannick
