FCC had voted unanimously to refer the deal to an administrative law judge. Tribune Media Company today terminated its merger agreement with Sinclair Broadcast Group and sued Sinclair for breach of contract. There was still a slim chance that Sinclair could save the merger because the FCC referred the deal to an administrative law judge. But Tribune announced today "that it has filed a lawsuit in the Delaware Chancery Court against Sinclair for breach of contract. The complaint seeks compensation for all losses incurred as a result of Sinclair's material breaches of the merger agreement." Tribune pointed to the same problems that the FCC found in Sinclair's proposal to divest some stations in order to stay under federal ownership limits. As FCC Chairman Ajit Pai said, Sinclair's divestiture proposal for certain stations "would allow Sinclair to control those stations in practice, even if not in name, in violation of the law. " Sinclair CEO Chris Ripley said Wednesday that Sinclair was working with Tribune to save the merger. But Tribune was unswayed, saying in today's announcement that Sinclair's conduct violated its contractual obligations to Tribune: In the merger agreement, Sinclair committed to use its reasonable best efforts to obtain regulatory approval as promptly as possible, including agreeing in advance to divest stations in certain markets as necessary or advisable for regulatory approval. Instead, in an effort to maintain control over stations it was obligated to sell, Sinclair engaged in unnecessarily aggressive and protracted negotiations with the Department of Justice and the Federal Communications Commission (the "FCC") over regulatory requirements, refused to sell stations in the markets as required to obtain approval, and proposed aggressive divestment structures and related-party sales that were either rejected outright or posed a high risk of rejection and delay—all in derogation of Sinclair's contractual obligations. The FCC "concluded unanimously that Sinclair may have misrepresented or omitted material facts in its applications in order to circumvent the FCC's ownership rules and, accordingly, put the merger on indefinite hold while an administrative law judge determines whether Sinclair misled the FCC or acted with a lack of candor," Tribune's statement continued. " As elaborated in the complaint we filed earlier today, Sinclair's entire course of conduct has been in blatant violation of the merger agreement and, but for Sinclair's actions, the transaction could have closed long ago. " The FCC vote means that the "merger cannot be completed within an acceptable timeframe, if ever," Tribune CEO Peter Kern said. "This uncertainty and delay would be detrimental to our company and our shareholders. Accordingly, we have exercised our right to terminate the merger agreement, and, by way of our lawsuit, intend to hold Sinclair accountable," he said. The complaint seeks $1 billion from Sinclair to cover the "lost premium to Tribunes stockholders," plus "additional damages in an amount to be proven at trial." Sinclair withdrew its merger application from the FCC after Tribune's announcement, and said that the "applicants will no longer pursue this transaction." Separately, on Tuesday, Democratic members of Congress asked the FCC to investigate reports that "Sinclair Broadcasting illegally exercised control over the advertising activities of Tribune Media Company." Sinclair owns or operates 173 broadcast TV stations in 81 markets, while Tribune has 42 stations in 33 markets. If no divestitures were made, "the combined company would reach 72 percent of US television households and would own and operate the largest number of broadcast television stations of any station group," the FCC notes. The merger was opposed by Democratic lawmakers, consumer advocacy groups, small cable companies, and Sinclair competitors. "This deal would have contributed to the trend where 'local' news and 'local' programming is created or scripted out of town and is indistinguishable from cable news," Public Knowledge Senior Policy Counsel Phillip Berenbroick said today. "The American public and the American consumer do not need more media consolidation, and it's good that this deal is dead. But we expect more efforts from the media titans in the future to tighten their grip on the information marketplace." The American Cable Association (ACA), which represents small- and medium-sized cable companies, also cheered Tribune's decision. "Tribune's decision to pull the plug on the Sinclair merger is great news for consumers who will avoid paying the higher pay-TV rates the deal would have caused," ACA CEO Matthew Polka said. "It is especially great news for those consumers served by smaller video providers that have been victimized in the past by outrageous retransmission consent fee hikes and scurrilous signal blackouts by large corporate broadcasters."
Media giants Sinclair and Tribune were all set to merge and create one of the countrys biggest broadcasters — and a complacent FCC seemed to be doing everything it could to help the deal along. But the regulator had a change of heart after evidence surfaced of duplicity too serious to be ignored, and the resultant red tape and bad PR provoked Tribune into spiking the deal and suing its would-be acquirer for $1 billion. The FCC, which until recently had been accused of being overly chummy with broadcasters, Sinclair in particular, last month issued a de facto merger death sentence to the deal, citing mounds of evidence that the company was shirking the terms of the merger and lying about it. The legal process of working out these issues with a view to approving the merger might have taken years. Tribune wasnt having that, and moved quickly to throw Sinclair under the bus. In a statement posted to the companys website, the company wrote that Sinclairs entire course of conduct has been in blatant violation of the Merger Agreement and, but for Sinclairs actions, the transaction could have closed long ago. The legal complaint published simultaneously goes into further detail: From virtually the moment the Merger Agreement was signed, Sinclair repeatedly and willfully breached 3 its contractual obligations in spectacular fashion… Sinclair fought, threatened, insulted, and misled regulators in a misguided and ultimately unsuccessful attempt to retain control over stations that it was obligated to sell. The damage, it asserts, amounts to a round $1 billion. This merger failing can hardly be considered as anything but good news to consumers; as former counsel at the FCC Gigi Sohn put it: This transaction had but two supporters – Sinclair and Tribune. It was opposed by large and small cable companies, rural broadband providers, conservative cable channels and the public interest community. Chairman Pai and his colleagues did right by the American people and the entire broadcast industry by putting the brakes on this merger. The ACLUs Jacob Hutt was even less diplomatic: This was a terrible idea to begin with. The merger would have trampled on First Amendment principles, crippled the future of journalism, and disproportionately harmed minority communities. We thank the thousands of activists that raised their voices to prevent the damage this deal would have done. But the most erudite insult surely comes from Sinclairs complaint. Sinclair was impervious to appeals to its contractual obligations. It intended to pursue its own narrow self-interest regardless of its obligations until the FCC found its conduct so egregious as to merit administrative review. Tribune is now the victim of that outrageous obduracy. Emphasis mine. I congratulate Tribunes lawyers on their prose.
This comes after the FCC referred the deal to a judge back in July. Today, Tribune Media announced that it is no longer interested in Sinclair's $3.9 billion takeover. Furthermore, the company is filing suit against Sinclair for breach of contract, which asks for compensation for all of Tribune's losses as a result of the breach. Sinclair wanted to purchase Tribune Media's 42 stations in 33 markets, but there was a problem. The company already owned 173 stations in 81 markets. While the FCC doesn't put a number cap on the number of stations a single company can own, it can't be above 39 percent of the total (though the FCC has been more lax in the past about UHF stations). As a result, Sinclair planned to sell off 21 of its stations. But the FCC had issues with the way Sinclair was approaching these sales and was concerned the company could buy the stations back after the merger was complete. The FCC voted to send the sale to a judge via a Hearing Designation Order (HDO), which usually means that a deal is dead. Now, unsurprisingly, Tribune has backed out. The reason Tribune has filed suit is that Sinclair agreed to use "best reasonable efforts" to make the sale happen by pursuing the sell off of some of its own stations. But constructing deals in such a way that would allow the company to maintain control or re-purchase them wasn't what Tribune had in mind. "In light of the FCC's unanimous decision, referring the issue of Sinclair's conduct for a hearing before an administrative law judge, our merger cannot be completed within an acceptable timeframe, if ever," said Peter Kern, Tribune Media's Chief Executive Officer, in a release. "This uncertainty and delay would be detrimental to our company and our shareholders. Accordingly, we have exercised our right to terminate the Merger Agreement, and, by way of our lawsuit, intend to hold Sinclair accountable."