The Federal Communications Commission relaxed broadcast ownership rules Thursday, paving the way for a deal that Sinclair Broadcast Group Inc. reportedly is considering to acquire Tribune Media Co.
Hunt Valley-based Sinclair, which owns or operates 173 television stations, is pursuing an acquisition of Tribune Media, owner of more than 40 TV stations, many in big media markets including New York, Chicago and Miami, for a price in the high $30s per share, Bloomberg News reported Wednesday, citing anonymous sources familiar with the matter. Talk of a potential acquisition first surfaced in March.
On Thursday, both Sinclair and Tribune declined to comment on the report. Tribune was the parent company of The Baltimore Sun until 2014, when it spun off its newspapers into a separate company; it still owns The Sun's offices on North Calvert Street.
The FCC voted Thursday to reinstate the so-called UHF discount, which allows stations broadcasting on those higher-frequency airwaves to count only half their audience against a cap allowing a single company to own stations reaching no more than 39 percent of the nation's television households. The changes are expected to spur consolidation in the television industry as traditional media outlets seek ways to compete with online platforms and cable providers.
The changes, advocated by the agency's new chairman, Ajit Pai, and approved on party-line votes, reverse initiatives the FCC pursued under Democratic leadership during the Obama administration. Consumer groups and some lawmakers warned that the deregulation steps would trigger more media consolidation and higher prices for consumers.
After the meeting, Pai said he was "not acting from ideological zeal," but just trying to promote competition.
Sinclair and Tribune Media are two of the largest owners of broadcast stations. A merger of the two would create a company whose total audience would have exceeded the statutory cap. Sinclair is near the cap and Tribune is just over it.
Sinclair has long been a proponent of deregulation that would open the door for additional TV station acquisitions. Besides limits on TV station ownership, media companies are barred from owning both a TV station and newspaper in a local market.
During an earnings conference a call in February, Sinclair CEO Christopher Ripley had said the company was "optimistic" about Pai's leadership.
"We expect good things to come from that," said Ripley, adding that deregulation should usher in a wave of consolidation, "which I predict will allow broadcasters to compete more effectively with the big diversified media companies."
According to the Bloomberg report, Sinclair is working to finalize a deal on or before the day Tribune reports first-quarter earnings, slated for the week of May 8.
In a media landscape that has been transformed by social media and other online venues, "one of the strategies for surviving and thriving is to become bigger," and benefit from economies of scale, said Karyl Leggio, a finance professor at Loyola University of Maryland.
The changes to ownership rules could make Tribune an attractive target for other broadcasters or even nonbroadcasters and result in a bidding war, she said.
"It seems like they are in friendly negotiations," she said.
Even with the change to the rules, a blending of Sinclair and Tribune would create a combined company over the ownership limits and require the sell-off of some assets, she said.
Marci Ryvicker, a senior analyst with Wells Fargo Securities, said in a report Wednesday that a deal in the reported range of high $30s per share, "makes sense from a financial perspective."
It also makes sense, she said, as the broadcast industry shifts to a new broadcast transmission standard that will provide over-the-air, high-definition broadcasts to mobile devices. Sinclair has played a key role in inventing and testing the system, and would greatly benefit under the new standard in larger TV markets where Tribune owns stations.
"From a strategy perspective, we don't see a better buyer for [Tribune] given [Sinclair's] diversified portfolio and size," she wrote.
The potential for such a deal also is raising concerns.
Matt Wood, policy director at Free Press in Washington, said the FCC's UHF discount decision could "seal the deal" on a merger.
Wood argues that combining the two companies would mean a single owner would reach about 70 percent of the U.S. audience, even though the FCC would no longer count it that way, and that the change merely helps big broadcasters get bigger. He is concerned about scenarios in which Sinclair or other large owners push content to all stations rather than locally controlled stations determining content.
"You're almost getting this one-size-fits-all approach with a single view passed down from headquarters to stations," he said. "It takes away from local choice and local diversity of viewpoints."
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During Thursday's FCC meeting, Pai said the UHF discount and the cap were "inextricably linked" and that it made no sense to change one without considering a change to the other. He promised the FCC would launch such a review later this year.
But Commissioner Mignon Clyburn said the UHF discount "had outlived its purpose" and reinstating it would allow a broadcast station group to reach up to 78 percent of the nation's TV households.
The FCC's action will reduce competition, ownership diversity and local content and "is a huge gift for large broadcasters with ambitious dreams of more consolidation," she said.