FCC orders hearing even as Sinclair changes plans to sell TV stations to address concerns about Tribune deal

The Federal Communications Commission voted unanimously to refer Sinclair Broadcast Group’s $3.9 billion takeover of Tribune Media to an administrative hearing despite the companies’ effort earlier Wednesday to address concerns by withdrawing proposals to sell some television stations to Baltimore-area business executives with ties to Sinclair.

The FCC announced the vote late Wednesday and said it would release the order Thursday.

Sinclair said Wednesday that it was amending its previous station divestiture plan designed to keep the merged company under federal TV ownership limits.

The changes came in response to concerns raised Monday by FCC Chairman Ajit Pai, who circulated the order to require an administrative law judge to hold a hearing on issues related to some of the proposed station sales, which appeared to allow Sinclair to continue to control them.

Sinclair said Wednesday that neither it nor Tribune has seen Pai’s draft order, but his comments and press reports indicate questions concerning proposed divestitures in Chicago, Dallas and Houston.

The broadcaster said it hopes to “expedite” the transaction by withdrawing plans to sell the Sinclair-owned KDAF in Dallas and KIAH in Houston to Cunningham Broadcasting Corp.

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.

Michael Anderson, Cunningham’s president and CEO, did not return a call seeking comment Wednesday.

Sinclair said it will ask the FCC for permission to place the Dallas and Houston stations into a divestiture trust to be operated and sold by an independent trustee after the Tribune deal closes. The company expects to find and sign a purchase agreement with a third party buyer or buyers for those stations before the closing.

In addition, Tribune, which owns WGN in Chicago, has withdrawn the pending sale of that station to WGN-TV LLC, Sinclair said.

Under that sales agreement, Steven B. Fader, a Towson auto dealer and investor, planned to buy the station for $60 million. Fader is CEO of Atlantic Automotive Corp., a holding company for MileOne Autogroup, an auto sales and service network of 72 franchises at 40 dealerships in Maryland, Pennsylvania, Virginia and North Carolina. Smith has a controlling interest in Atlantic Automotive and serves as member of its board, Sinclair’s proxy statement shows. Fader could not be reached Wednesday.

“Sinclair will simply acquire that station as part of the Tribune acquisition, which is, and has always been, fully permissible under the national ownership cap,” Sinclair’s statement said.

Sinclair said it is proposing the amended divestiture plan despite having been “completely transparent about every aspect of the proposed transaction” during its numerous meetings and discussions with the FCC’s Media Bureau, including how the structure complied with FCC rules.

The deal, 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.

“We have fully identified who the buyers are and the terms under which stations would be sold to such buyers, including any ongoing relationship we would have with any such stations after the sales,” Sinclair said in its statement. “While we understand that certain parties, which oppose the transaction object to certain of the buyers based on such buyers' relationships with Sinclair, at no time have we withheld information or misled the FCC in any manner whatsoever.”

“We were shocked that concerns are now being raised,” Sinclair said Wednesday. “Nonetheless, we have decided to move forward with these additional changes to satisfy the FCC's concerns.”

The company called on the FCC to approve the deal “in order to bring closure to this extraordinarily drawn-out process and to provide certainty to the thousands of Tribune employees who are looking for closure.”

Shares of Sinclair closed down further Wednesday, dropping more than 2 percent to $27.40 each, while Tribune stock rose 2 percent to $34.10 a share.

Some analysts had been expecting a countermove from Sinclair.

Jefferies analyst John Janedis had said Monday he expected Sinclair to address station sales flagged by the FCC and that Tribune was not likely to pull out of the deal.

“At this point, we believe that both parties would like to complete the transaction, given the amount of time and energy invested in the deal, as well as the impact on both stocks,” Janedis wrote.

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.

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.

“Sinclair's latest minor makeover of its mega-merger with Tribune doesn’t look any better for the American public,” said Craig Aaron, president and CEO of Free Press, an opponent, in a statement Wednesday. “This company has been misleading the FCC for years with front groups and shady arrangements to control local TV stations, undercut competition and evade FCC rules.”

called on Pai to keep the brakes on a deal opposed by “hundreds of thousands of people” who have written to the agency and to publicly release the hearing order shared with the other FCC commissioners.

lorraine.mirabella@baltsun.com

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