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FCC questions public interest in Sinclair Broadcast's deal for Tribune

The Federal Communications Commission questioned the public interest of approving Sinclair Broadcast Group’s $3.9 billion deal to take over Tribune Media in a document released Thursday.

The agency said in the hearing order that Hunt Valley-based Sinclair might have tried to skirt federal broadcast ownership rules by misrepresenting buyers of TV stations it planned to shed to secure the deal’s approval.

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FCC commissioners voted Wednesday to send Sinclair’s bid to acquire Tribune for review by an administrative law judge at the agency, prompted by questions over Sinclair’s plans to sell television stations in Chicago, Dallas and Houston.

“The record raises significant questions as to whether those proposed divestitures were in fact ‘sham’ transactions,” the FCC’s hearing designation order said.

Sinclair did not respond to requests for comment Thursday. The company has denied misleading the FCC, saying in two statements since Monday that it had been transparent about all aspects of the deal, identifying buyers and ongoing relationships with the stations after the sales. On Wednesday, the broadcaster revised its previous station divestiture plan, designed to keep the merged company under federal TV ownership limits.

“At no time have we withheld information or misled the FCC in any manner whatsoever with respect to the relationships or the structure of those relationships proposed as part of the Tribune acquisition,” Sinclair said. “Any suggestion to the contrary is unfounded and without factual basis.”

Tribune Media said Thursday that it had reviewed the FCC’s order and was assessing the company’s options.

“We will be greatly disappointed if the transaction cannot be completed, but will rededicate our efforts to running our businesses and optimizing assets,” Tribune said.

When the FCC sends cases for hearings with an administrative law judge, it is often a death knell for the proposed transaction.

SInclair’s stock fell a further 4 percent Thursday, closing at $26.30 a share — down 20 percent so far this week. Shares of Tribune fell 4.7 percent to $32.49 each — off nearly 16 percent this week.

The FCC’s order highlighted Sinclair’s now-withdrawn application to transfer Tribune’s WGN-TV in Chicago to Steven Fader, who has no experience in broadcasting. Fader is CEO of Atlantic Automotive Corp., a holding company for MileOne Autogroup, in which Sinclair’s executive chairman has a controlling interest.

Sinclair would have owned most of WGN’s assets and been responsible for many aspects of its operations, the FCC order said. Additionally, the FCC said, Fader would have purchased the station for a price that appeared to be far below market value, and Sinclair would have had an option to buy back the station in the future.

Even though Sinclair withdrew that application on Wednesday, before the hearing order was adopted, commissioners questioned whether the application included “a potential element of misrepresentation or lack of candor that may suggest granting other, related applications by the same party would not be in the public interest.”

Besides withdrawing the WGN-TV sale, Sinclair withdrew plans on Wednesday to sell the company’s KDAF in Dallas and KIAH in Houston to Cunningham Broadcasting Corp.

The FCC order also flagged those proposed station sales, questioning whether Sinclair would retain control of those stations and if so, “whether Sinclair engaged in misrepresentation and/or lack of candor in its application with the commission.”

Baltimore-based Cunningham, which owns or operates 20 TV stations, including WNUV-TV in Baltimore, is owned by the estate of Carolyn C. Smith, the mother of Sinclair’s controlling shareholders, including Sinclair Executive Chairman David D. Smith and his three brothers. The Carolyn Smith estate owns all the voting stock, while the non-voting stock is owned by trusts benefiting the controlling shareholders’ children. Some Sinclair stations provide services to Cunningham stations through joint sales or shared service agreements.

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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.

Sinclair has said the future of free and local over-the-air television is at stake. The broadcaster says it need to be larger to compete with programming providers such as TV networks, cable companies, satellite providers, Amazon, HBO, YouTube, Netflix and others that transmit content over the Internet.

The way the deal was structured, Sinclair has said, followed arrangements that Sinclair and other broadcasters have used with FCC approval for years.

But opponents on both sides of the political aisle have criticized the deal as too large, saying it would hurt media competition and consumers and give Sinclair a bigger platform to use news broadcasts to advocate for its conservative views.

Several advocates and lawyers who have actively opposed the merger called on Tribune’s board Thursday to end the merger agreement, arguing that the company appears to have the contractual right to do so.

“Tribune’s obligation to consummate the merger is conditioned on Sinclair’s representations and warranties being true and correct in all respects,” said a letter to Tribune’s board signed by Gene Kimmelman, president of Public Knowledge; Brian Hess, executive director of Sports Fans Coalition, and two representatives of Georgetown University Law Center.

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