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Sinclair and Tribune considering options for stalled $3.9 billion merger as financing expires

Sinclair Broadcast Group said Wednesday it continues to work with Tribune Media Co. to win approval of their controversial proposed $3.9 billion merger even as its financing for the deal was set to expire.

While announcing better-than-expected quarterly financial results Wednesday, the Hunt Valley-based broadcaster said it is in discussions with Chicago-based Tribune about next steps even though the deal hit a potentially deal-ending roadblock with federal regulators last month.

“In regards to the acquisition of Tribune Media Company, we are working with them to analyze approaches to the regulatory process that are in the best interest of our companies, employees and shareholders,” said Chris Ripley, Sinclair’s president and CEO, in an statement.

His comments came as the financing Sinclair arranged to pay for the all-cash acquisition was set to expire Wednesday, according to a company filing with the Securities and Exchange Commission.

“We are working with the Committed Lenders to extend the financing commitments,” Sinclair said in the Wednesday filing.

They also came hours before a midnight deadline after which either Tribune or Sinclair could walk away from the deal without penalty under the terms of the May 2017 merger agreement.

Tribune said last month it was assessing its options after the Federal Communications Commission voted to send the deal for a review by an agency administrative law judge, a move that could at least delay the deal and has in the past meant the end of such mergers.

A Tribune spokesperson said it had no comment Wednesday. The company will announce its earnings Thursday.

Sinclair had said it was “shocked” last month after FCC Chairman Ajit Pai, unexpectedly raised concerns about the deal and recommended sending it to the review.

During a morning conference call with analysts, Ripley said the company would not offer an update on the proposed Tribune acquisition, but “we expect to do so in the near future.”

The company’s limited comments on the Tribune deal came as the company reported earnings for the quarter ended June 30 of $28 million, or 27 cents per share, far exceeding the estimates of Wall Street analysts who expected a profit of 2 cents per share. Revenue for the April-to-June period of $730.1 million topped expectations by about $15 million.

The news lifted Sinclair’s shares nearly 6 percent in morning trading. By mid-afternoon, the stock was trading at $27.22 a share, up 4.7 percent.

Sinclair’s earnings were down from the second quarter of 2017 when it made $44.6 million, or 43 cents per share, on revenue of $652.2 million. The most recent quarter’s income include $39 million in costs related to maintaining the expiring financing commitments for the Tribune acquisition.

“Second quarter results came in well ahead of guidance in all key financial metrics, and we expect the second half of the year to continue to be robust,” partly because of strong spending on political advertising, Ripley said.

Political revenues in the second quarter reached $28 million, compared with $5 million a year ago during a non-election year.

Such spending will continue to benefit the broadcast TV industry in the run-up to this year’s midterm elections, which, Ripley said, are “expected by many to have the most spending in U.S. history.”

Sinclair’s bid to buy Tribune had appeared on track to close soon after July 12, despite taking longer than expected under a pro-business FCC, one that had been loosening what some broadcasters view as antiquated TV ownership rules.

Opponents for months had 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.

Pai, an appointee of President Donald J. Trump who has been viewed as friendly to Sinclair and such a merger, raised “serious concerns” last month about whether the deal would serve the public interest and about Sinclair’s candor in describing the deals to sell some stations, a charge Sinclair denied.

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.

While Sinclair executives would not comment on any Tribune-related questions during Wednesday’s call with analysts, Ripley did answer questions about how the uncertainty might affect the company’s appetite for acquisitions, especially as Disney looks to sell off cable regional sports networks as part of its $71 billion deal to buy most of 21st Century Fox's entertainment assets.

“Our appetite to do further acquisitions has not changed due to the current status of the Tribune transaction,” Ripley said. “We will seek scale within broadcast industry.”

Ripley called some of the regional sports cable networks “interesting” and a “good fit with the broadcast footprint and operations. [But] it has to be for the right value and the right deal.”

Asked about the potential for mergers and acquisitions if the Tribune deal falls through, Ripley said the regulatory environment remains “very favorable,” especially with the so-called UHF discount in place, which allows stations broadcasting on those higher-frequency airwaves to count only half of their audience against a national cap.

lorraine.mirabella@baltsun.com

twitter.com/lmirabella

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