Sinclair Broadcast Group expects to finalize its proposed $3.9 billion takeover of Tribune Media in the second quarter, the Hunt Valley TV station owner said Wednesday.
The company updated the status of the planned acquisition, which would cement its spot as the nation’s largest broadcaster, as it reported financial results for the last three months of its fiscal year.
Sinclair’s profit jumped to $443.5 million, or $4.32 per share, for the fourth quarter, compared with $120.9 million, or $1.32 per share, in the fourth quarter of 2016. The increase included a $272 million tax benefit as a result of federal tax reform — which lowered the corporate tax rate from 35 percent to 21 percent — and a $225 million gain for vacating spectrum in some markets as part of a government auction to free up spectrum for wireless use.
But revenues for the three months that ended Dec. 31 fell 8 percent to $734 million compared with $797.7 million in the fourth quarter of 2016, which included $113 million of political advertising during a presidential election year.
The revenue slump sent the company’s stock down 6.2 percent to close at $33.80 a share Wednesday.
The company said its fourth-quarter results, when adjusted for transaction, legal and other one-time charges, exceeded company expectations.
"As we begin 2018, there are many positive events we are looking forward to driving value for the company and the industry," said David Smith, Sinclair’s executive chairman, in the company’s announcement. “Meanwhile, we continue to work with the required governmental agencies towards the successful acquisition of Tribune Media Company.”
Tribune Media is the TV side of the former Tribune Co., which spun off Tribune Publishing, the owner of The Baltimore Sun. in 2014. Tribune Publishing became tronc in 2016.
Sinclair’s purchase of Tribune Media requires Federal Communications Commission approval as well as an antitrust review by the U.S. Justice Department. As originally proposed, the deal would have given Sinclair control of 233 television stations that reach 72 percent of U.S. households, including 42 Tribune-owned stations and a presence in top markets.
Last week, Sinclair outlined plans to sell TV stations in New York, Chicago and nine smaller markets to comply with national and local TV station ownership rules and pave the way for federal approval. Stations that could be sold will be run by a trust until buyers are found, a structure that will allow Sinclair to finalize a deal while working out station sales.
“The DOJ has not concluded its process, but we feel it’s close, close enough that we could move forward with the divestiture trust plan,” Chris Ripley, Sinclair’s president and CEO, told analysts during a conference call Wednesday. “Certainly if anyone thought the DOJ would play favorites with Sinclair I can tell you unequivocally that’s not true. They have scrutinized this transaction very closely,” more than other acquisitions in the company’s history.
Critics of the deal have accused the FCC and Chairman Ajit Pai, an appointee of President Donald J. Trump, of changing rules to benefit the conservative-leaning Sinclair.
Smith said the industry as a whole would benefit long term from the FCC’s deregulation of local and national broadcast ownership rules, as well as from the approval of a next generation TV broadcast standard, which will enable mobile video and targeted advertising. Federal tax reform, he said, should benefit small and medium-sized advertisers.
Analyst Tuna N. Amobi of investment research firm CFRA said Wednesday he is keeping a “buy” rating on the company’s stock and raising the 12-month target price by $2 to $38 per share. He cited the positive impact of an expected 5 percent to 6 percent revenue gain in the first quarter, the ongoing adoption of the next-generation broadcast standard and the expected closing of the Tribune deal in the second quarter.
The first quarter has so far been off to a slower-than-expected start, with a decrease in core advertising revenue, because Sinclair owns or operates a low percentage of affiliates of NBC, the network that aired the Super Bowl and the Olympics.
But, “we are looking forward to growth drivers from the upcoming mid-term elections and the positive effects from tax reform and a growing economy,” Ripley said in the company’s announcement.
When the Sinclair Broadcast Group announced the purchase of Tribune Media, the $3.9 billion deal looked like a slam dunk to gain government approval and make the Hunt-Valley-based company the largest TV company in the nation.