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Fox to buy Sinclair Broadcast stations in Tribune Media deal

Fox Broadcasting Co. will buy some of the 23 Sinclair Broadcast Group television stations that the broadcaster will sell in its bid to win federal approval of its proposed $3.9 billion takeover of Tribune Media.

Fox is buying seven stations for $1.5 billion, plus another $100 million in working capital, Hunt Valley-based Sinclair said Wednesday. The deal with Fox does not involve stations where Sinclair will continue to provide services after the deal closes.

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The news sent Sinclair shares soaring, with shares closing up 9.3 percent Wednesday at $29.85 each.

Fox joins other previously announced buyers of Tribune and Sinclair stations, including Standard Media Group LLC, an affiliate of Standard General; Meredith Corp.; Howard Stirk; and Cunningham Broadcasting Corp.

Sinclair said Wednesday the Tribune deal is expected to close late in the second quarter or early in the third quarter.

"After a very robust divestiture process, with strong interest from many parties, we have achieved healthy multiples on the stations being divested," said Chris Ripley, Sinclair president and CEO, in the company's announcement.

Iin a morning conference call with analysts, Ripley said the Fox sale means Sinclair is nearing the final stages before closing. The deal requires the approval of the Federal Communications Commission and U.S. Justice Department.

Sinclair also announced Wednesday that its first-quarter profit decreased. It attributed the decline to weaker advertising sales compared to the first three months of last year, when the Olympics and Super Bowl aired on many Sinclair stations, and a drop in auto advertising from last year's highs.

The company reported income of $43.1 million, or 42 cents per share, for the three months ended March 31, compared with income of $57.2 million, or 61 cents per share, for the first quarter of 2017. Revenues rose more than 6 percent to $665.4 million, compared with $626.9 million in the first quarter of 2017.

On Wednesday's conference call, Ripley said the company has begun disclosing its distribution revenue, which includes retransmission fees — or the fees cable and satellite TV providers pay Sinclair to include its stations in channel lineups — affiliate fees and subscriptions revenue. That makes up 45 percent to 50 percent of Sinclair's media revenue, Ripley said.

"At a time when audience fragmentation and uncertainty about the economy are on the rise, investors should take solace knowing almost half our revenues are sheltered from advertising volatility," Ripley said.

Despite the planned station sales, Ripley said, the company believes it should not have needed to sell them as part of the Tribune deal. Without the sales, the Tribune Media acquisition, announced last May, would have given Sinclair control of 233 television stations, including 42 Tribune-owned stations and a presence in such top markets as New York and Chicago. (Tribune Media, formerly part of Tribune Co., once owned The Baltimore Sun and other newspapers, but spun them off in 2014.)

The proposed merger has run into strong opposition from those worried about the loss of diverse voices across the broadcast landscape, a concern heightened by Sinclair's conservative leanings. Some critics also point to previous relationships between Sinclair and some of the intended buyers, including Cunningham and a Towson investor who's the top executive of the MileOne auto dealer group.

The company has argued it needs that reach to better compete with other sources of news and entertainment delivered online or by cable TV.

Ripley said Wednesday the merger will "create a leading broadcast platform with local focus and national reach," and position the broadcaster for changes coming as part of a new broadcast transmission standard known as Next Generation Broadcast.

After the merger and sale of 23 stations, Sinclair stations will reach 62 percent of U.S. TV households and fall under the federal TV station ownership cap of 39 percent, the company said.

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Sinclair said it also reached renewal agreements for 34 Fox station affiliates, including all eight of Tribune's Fox affiliates, which are not being sold to Fox Broadcasting.

"We view the Fox renewal and station sales as a good step forward, removing an element of uncertainty for this [Tribune] transaction," Marci Ryvicker, a senior analyst with Wells Fargo Securities, said in a report Wednesday morning.

The advocacy organization Free Press, which opposes the Tribune deal, said Wednesday the merger and the sale to Fox were made possible by efforts of FCC Chairman Ajit Pai, a Trump appointee, to gut longstanding broadcast-ownership limits.

The organization, along with Common Cause, Media Mobilizing Project and the National Hispanic Media Coalition, have petitioned the D.C. Court of Appeals to overturn last year's FCC decision to reinstate the so-called "UHF discount." The discount allows stations broadcasting on those higher-frequency airwaves to count only half of their audience against a cap allowing a single owner's stations to reach no more than 39 percent of the nation's television households.which

"Sinclair's plan to sell seven stations to Fox as part of its Tribune takeover shows everything that's wrong with the media-ownership landscape," said Craig Aaron, Free Press president and CEO, in a statement. "At a time when our communities are clamoring for local coverage and independent voices, TV stations are being swallowed up by a few huge conglomerates."

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