Sinclair Deal Is in Doubt As Tribune Reconsiders

The Sinclair Broadcast Group’s plan to create a broadcasting behemoth that it hoped would rival Rupert Murdoch’s Fox News appears to be coming to an end.

Already the largest local television operator in the nation, Sinclair agreed in 2017 to buy the rival TV group Tribune Media for $3.5 billion. The deal would have given the combined company control of broadcasters reaching 7 in 10 households across the country, including in New York, Chicago and Los Angeles.

But in light of the Federal Communications Commission’s draft order this week questioning whether Sinclair was sufficiently transparent in how it represented the deal to regulators and whether a merger would be in the public interest, Tribune said in a statement Thursday that it was “evaluating its implications and assessing all of our options.”

The merger agreement allows either side to walk away from the deal if it does not close by Aug. 8. Sinclair declined to comment.

This week has brought a stunning shift in momentum for a deal that once seemed almost assured of being completed, thanks in no small part to policy changes proposed or enacted by the FCC and advocated by Sinclair. The commission had also eased a cap on how many stations a broadcaster can own and relaxed a restriction on advertising revenue and other resources shared by television stations.

But on Monday, the agency’s chairman, Ajit Pai — who is the subject of an investigation by the office of the FCC’s inspector general regarding his new policies — said he had “serious concerns” about the Sinclair-Tribune merger. Pai asked the agency’s four commissioners to hand off its review of the merger to an administrative law judge to determine the legality of Sinclair’s proposal.

To satisfy rules that forbid a single company to own airwaves on such a dominant scale, Sinclair had proposed selling 23 TV stations after the deal was completed. But several of those stations would still effectively fall within its operational control, which the FCC said raised “significant questions as to whether those proposed divestitures were in fact ‘sham’ transactions.”

Sinclair, which has emerged as a significant outlet for conservative viewpoints, tried to placate federal regulators Wednesday by amending those planned divestitures. The agency was not moved.

Sinclair’s original divestiture plan came under scrutiny because several of the stations it planned to sell would effectively remain within its control through contractual agreements known as “sidecars.”

As an example, the broadcast giant planned to sell the Chicago station to a Maryland businessman, Steven Fader, who runs a company controlled by Sinclair’s executive chairman, David D. Smith. The FCC said the sale price of $60 million appeared “to be far below market value,” citing a Chicago station that Fox bought for $425 million in 2002.

The sidecar agreement would also designate Sinclair as the primary ad seller for the station and allow it to continue to provide programming, giving Sinclair 30 percent of the station’s revenues in fees for that service.

Sinclair also agreed to sell a Dallas station and a Houston station to Cunningham Broadcasting, a privately held company that is controlled by Smith’s family, according to securities filings. The combined sale price for both stations was $60 million, “far below the expected market price for stations in markets this size,” according to the FCC’s draft order.

Sinclair, known for amplifying the Trump administration’s talking points in commentary segments that air on numerous local newscasts, is seen as a dangerous new competitor among other conservative news outlets.

Christopher Ruddy, the chief executive of the conservative news network Newsmax, said the Sinclair-Tribune merger would concentrate too much power in one company. His company campaigned vigorously against the deal, putting him on the same side as more liberal-leaning consumer advocacy groups.

“This was a bipartisan effort,” he said. “A lot of people are against media concentration. Even the president himself campaigned against media concentration, and this deal was an even bigger concentration of power than the AT&T-Time Warner deal.”

As a candidate, Donald Trump, who had frequently criticized the Time Warner property CNN as “fake news,” vowed to stop the AT&T-Time Warner merger if elected. The Justice Department recently appealed the ruling that permitted the deal.