Sinclair 'did not fully disclose facts' on Tribune merger: FCC
Sinclair Broadcast Group Inc
The order is a serious and potentially fatal blow to Sinclair`s bid to acquire Tribune. Tribune said it is "currently evaluating its implications and assessing all of our options in light of today`s developments."
Sinclair had sought to remove questions about three stations referenced in the order by dropping divestiture plans on Tuesday. The FCC said the judge will review whether Sinclair engaged in misrepresentation or a lack of candour and whether the deal would violate the FCC`s broadcast ownership rules.
Sinclair did not immediately comment on Thursday, but said on Wednesday "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."
Shares of Sinclair, the largest U.S. local broadcast station operator, closed down 4 percent at $26.30 a share on Thursday and are down 20 percent since FCC Chairman Ajit Pai said on Monday he had "serious concerns" about the deal. Tribune shares closed down 4.6 percent at $32.49 a share on Thursday.
Tribune, which owns or operates 42 broadcast stations, said on Thursday it "will be greatly disappointed if the transaction cannot be completed, but will rededicate our efforts to running our businesses and optimising assets."
Tribune Chief Executive Peter Kern told employees in an email the deal is on hold pending the review. Tribune or Sinclair can terminate the merger agreement if it is not completed by Aug. 8.
Three FCC officials, speaking on condition of anonymity, told Reuters it is almost certain that Sinclair will have to withdraw its bid in light of the hearing.
Sinclair said on Wednesday it will drop plans to divest stations in Dallas, Chicago and Houston to "expedite" the transaction after the FCC suggested the company would still control the stations.
The FCC, which voted 4-0 to send the issue to a hearing, suggested that three Tribune stations being divested were being sold at below-market prices to entities with close ties to Sinclair.
Sinclair had proposed to sell WGN in Chicago to Maryland auto dealer Steven Fader, a longtime business associate of Sinclair Executive Chairman David Smith, and would largely continue to operate the station under a services agreement. Instead, Sinclair said it would acquire WGN.
Sinclair also said it was withdrawing plans to sell stations in Dallas and Houston to Cunningham Broadcasting Corp, a company controlled by the estate of Smith`s mother. Sinclair said on Wednesday it now wants to put the two Texas stations into a divestiture trust to be sold and operated by an independent trustee.
The FCC said Sinclair did not "fully disclose facts," including the pre-existing business relationships between Fader, Smith, and Sinclair nor the full entanglements between Cunningham, Smith, and Sinclair."
The FCC said the $60 million purchase price for WGN "appeared to be significantly below market value" and noted that Fader is CEO of a company in which Smith has a controlling interest. The FCC also noted Sinclair would have owned most of WGN`s assets and would have been able to buy back the station in the future.
"Such facts raise questions about whether Sinclair was the real party in interest ... and attempted to skirt the commission`s broadcast ownership rules."
The FCC said it questioned "the legitimacy of the proposed sale of such a highly rated and profitable station in the nation`s third largest market to an individual with no broadcast experience, with close business ties to Smith and with plans to own only the license and minimal assets."
Critics of Sinclair`s deal for Tribune wrote a letter to Tribune`s five-member board of directors on Thursday arguing that the company should pull out of the planned transaction.
The group included the advocacy group Public Knowledge and Sports Fans Coalition Inc.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)
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