Tribune withdraws from Sinclair merger, saying it will sue for ‘breach of contract’

Tribune Media said Thursday that it would withdraw from its proposed merger with Sinclair Broadcast Group, while announcing a $1 billion lawsuit against Sinclair over its failed negotiations with federal regulators over the deal.

The breakdown of the deal reflects a reversal of fortunes for Sinclair, which had announced the $3.9 billion tie-up last year as a “transformational” event and the biggest acquisition in its history.

But the merger began to stumble last month after Federal Communications Commission Chairman Ajit Pai raised “serious concerns” about the deal, which originally would have reached roughly 70 percent of U.S. households. The FCC said it would send the deal for review by an administrative law judge, which is often interpreted as a signal a transaction may be blocked.

“In light of the FCC’s unanimous decision, referring the issue of Sinclair’s conduct for a hearing before an administrative law judge, our merger cannot be completed within an acceptable time frame, if ever,” said Peter Kern, Tribune’s chief executive officer, in a statement Thursday. “This uncertainty and delay would be detrimental to our company and our shareholders. Accordingly, we have exercised our right to terminate the Merger Agreement, and, by way of our lawsuit, intend to hold Sinclair accountable.”

Sinclair did not immediately respond to a request for comment.

The $3.9 billion deal had aimed to create a conservative broadcasting giant, with Sinclair proposing to control 233 stations in 108 markets nationwide. The original deal would have meant creating the biggest U.S. television company, adding Tribune’s 42 stations to Sinclair’s roster. And it would have been a victory for conservative media in a turbulent political environment, in which Republican critics have alleged systemic negative bias on college campuses and social media platforms.

The merger has even attracted the attention of President Donald Trump, who last month on Twitter criticized federal regulators for getting in the way of what he said would have become a “great and much needed Conservative voice for and of the People.”

“Liberal Fake News NBC and Comcast gets approved, much bigger, but not Sinclair,” he added. “Disgraceful!”

As an independent agency, the FCC is supposed to refrain from factoring politics into its merger analyses.

The FCC said its main concern was Sinclair’s offer to spin off a number of stations in Chicago, Dallas and Houston.

Analysts said Sinclair needed to divest from some stations to comply with a national cap, enforced by the FCC, on any single broadcast company’s national audience reach. But Pai, the FCC chairman, said in a statement at the time that the “evidence we’ve received” suggests that Sinclair could still be able to control some of “those stations in practice, even if not in name, in violation of the law.”

In a later filing, the agency asked the administrative law judge to review whether Sinclair had engaged in “misrepresentation and/or lack of candor” as part of its earlier divestment proposal.

At the time, Sinclair strongly defended its proposal to the FCC, stressing it would “create numerous public interest benefits and help move the broadcast industry forward at a time when it is facing unprecedented challenges.”

“At no time have we 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,” the company said in a July statement.

Sinclair also continued negotiations with Tribune over ways to address regulators’ concerns.

In terminating its merger agreement, Tribune on Thursday said that Sinclair had engaged in “unnecessarily aggressive and protracted negotiations” with the government. Tribune said that Sinclair “refused to sell stations in the markets as required to obtain approval, and proposed aggressive divestment structures and related-party sales that were either rejected outright or posed a high risk of rejection and delay — all in derogation of Sinclair’s contractual obligations.”

Speaking later on an earnings call with investors, Tribune executives said the lawsuit seeks a “large number” in damages but did not reveal a specific amount. Kern said he was “extremely pleased” with the state of Tribune in its current form, yet expressed an openness to mergers with other companies in the future.

Pai’s decision to push for a legal review kicked off a last-minute influence campaign by Sinclair, which hired nearly half a dozen lobbyists last month to argue for the deal in Washington.

The FCC’s move to block the deal was widely viewed with surprise in Washington. Pai has been a staunch advocate for the broadcast industry, repealing numerous legacy regulations that he said prevented economically struggling TV and radio stations from surviving in the digital age. For example, Pai led the charge on reinstating a type of agency accounting method that effectively helps broadcast companies own more stations while remaining beneath the national audience cap.

His efforts, which ultimately benefited large firms such as Sinclair, drew the scrutiny of lawmakers who raised questions about whether Pai may have behaved inappropriately toward the conservative broadcaster.