Business

Sinclair accused of misleading FCC as $3.9 billion Tribune deal goes to a hearing

Bloomberg

Regulators accused Sinclair Broadcast Group Inc. of misleading them as it sought approval to buy Tribune Media Co. — and sent their companies’ proposed $3.9 billion merger to the uncertain future of a hearing.

The U.S. Federal Communications Commission asked whether Sinclair was in fact the hidden buyer in a proposal to sell Chicago’s WGN-TV to an automobile executive with no prior broadcast experience. The agency also questioned ties between the Maryland-based broadcaster and a buyer proposed for stations in Dallas and Houston.

The planned station sales were set at what appeared to be below-market prices, and Sinclair was poised to remain in control of the properties despite the transactions, the FCC said. Sinclair had proposed divestitures to avoid exceeding ownership limits after buying Tribune’s 42 television stations.

“There is a substantial and material question of fact as to whether Sinclair affirmatively misrepresented or omitted material facts,” the FCC said in an order sending the deal, which was first proposed last year, to a hearing before an FCC administrative law judge.

The agency asked whether Sinclair had “attempted to skirt the commission’s broadcast ownership rules.”

Hearings have been a death knell for other deals because they can freeze companies in place with no resolution, possibly for months.

Tribune fell 6.3 percent to $31.97 in New York at 2:16 p.m. New York time, leaving shares down 16 percent in the past month, the largest drop in 18 months. Sinclair was down 2.2 percent to $26.80 after falling as low as $25.98 Thursday. Shares have fallen 16.5 percent in the past month, the largest drop in more than a year.

Sinclair and Tribune representatives were not immediately available for comment.

Sinclair, which grew from a single TV station in Baltimore in 1971, is trying to leap into nationwide prominence with the deal for Tribune stations in cities such as New York and Chicago. The purchase proposed last year would lift Sinclair’s station total above 200.

Sinclair withdrew the Texas and Chicago sales after FCC Chairman Ajit Pai on Monday said the transactions may not be lawful. To little avail.

There are “significant questions” about whether the station sales “were in fact ‘sham’ transactions,” the FCC said in the order released Thursday.

For instance, Steven Fader, who was slated to buy WGN, is chief executive officer in a business controlled by Sinclair’s executive chairman, the FCC said.

Sinclair would have owned most of WGN’s assets, would have been responsible for station operations, and Sinclair would have an option to buy the station back. In addition, Fader would have bought WGN for $60 million — a price that appears to be “highly discounted” compared with a $425 million station sale in Chicago in 2002, the FCC said.

“Such facts raise questions about whether Sinclair was the real party in interest under commission rules and precedents and attempted to skirt the commission’s broadcast ownership rules,” the FCC said in the order.

Station KDAF in Dallas and KIAH in Houston were slated to be sold to Cunningham Broadcasting Corp., a company with a relationship with Sinclair stretching back at least 20 years, the FCC said.

“The close relationship between Sinclair and Cunningham could explain how Cunningham was able to execute an agreement to purchase stations KDAF and KIAH at what appear to be below-market prices,” the FCC said. “Thus, discovery and a hearing are necessary to determine the relationship.”

The administrative law judge is to set a completion date for the hearing, according to the order.

Commissioner Michael O’Rielly, a Republican who’s been critical of the hearing process as unfair to companies sent into it, had asked for “defined timelines” before he would support the hearing.

“This is what some may refer to as an initiation of a hint of due process,” he said in a statement. “I realize that many merger applicants will be unable to withstand the market pressures to end transactions long before any such timelines are established or exhausted.”