Sinclair Filing to Clarify How It Can Complete Tribune Media Acquisition
Leon Lazaroff | The Street | October 4, 2017
For a media company especially loath to show its hand, Sinclair Broadcast Group Inc. (SBGI – Get Report) is expected to make a government filing on Thursday, Oct. 5, that may offer some clues about how it plans to comply with federal regulations tied to its pending $6.6 billion acquisition of Tribune Media Co. (TRCO – Get Report).
Sinclair in May announced plans to buy Chicago’s Tribune Media, owner of WGN America and 42 broadcast TV affiliates around the country, in a transaction that would create the largest TV station owner in the country — by a sizable margin. Sinclair is already the largest.
The deal, though, needs regulatory approval. The Federal Communications Commission last month asked Sinclair to demonstrate how it plans to comply with a number of regulations including a cap on national ownership, rules around duopolies (owning two of the four largest stations in the same market) and evidence that the merger would benefit the “public interest.” The FCC and the Department of Justice have the right to block or amend such deals if they are judged to be counter to the public interest as stipulated in the Communications Act of 1934.
In a Sept. 14 letter to Sinclair counsel, FCC Media Bureau Chief Michelle Carey said the suburban Baltimore broadcaster must lay out its plans to comply with current regulations. The letter set a Thursday deadline for a reply.
“The applicants do not indicate what steps, if any, they have already taken or plan to take post-transaction to comply with the national ownership limit,” she wrote. “The applicants do not indicate what steps, if any, that they have taken so far to comply with the local television ownership rules.”
FCC Chairman Ajit Pai in March opened Sinclair’s path to acquiring Tribune Media when he made it easier for station owners to meet federal restrictions that limit the size of their national coverage to no more than 39% of U.S. TV households.
If Sinclair were to acquire Tribune Media, the merger would create a company owning 223 TV stations serving 108 markets, including 39 of the top 50. Its coverage area was set to reach about 72% of U.S. households.
Yet Pai’s FCC reinstated the so-called UHF discount, making it possible for station owners such as Sinclair to count just 50% of viewers when tabulating the coverage area of legacy UHF stations. Using the discount, a merged Sinclair-Tribune Media’s national coverage area would be 45.5%, a total still above the 39% cap but easily reconciled by divesting some TV stations.
Created in 1985, the UHF discount was rescinded a year ago by the FCC when it was led by Tom Wheeler, an Obama appointee. Wheeler argued the UHF discount no longer applied to a media industry where most people watch TV through a pay-TV subscription rather than an over-the-air antenna.
Either way, Sinclair may not have to divest any TV stations given that Pai has signaled he is open to raising the cap above 39%. It remains to be seen whether Pai, a former attorney with Verizon Communications Inc. (VZ – Get Report) , would attempt to raise the cap before making a decision on the Sinclair-Tribune merger.
Duopolies is another area where the filing will be scrutinized. Federal regulations prohibit common ownership of two of the top four stations in the same designated market area. According to Allied Progress, a consumer advocacy group based in Washington, a combined Sinclair-Tribune Media would own duopolies in 10 markets including Seattle; Des Moines, Iowa; Oklahoma City; and Salt Lake City.
Sinclair also must spell out how the proposed merger would benefit the public interest. Democrats in Congress have argued that Sinclair is anything but an even-handed steward of the public airways. Indeed, Sinclair’s political commentaries and so-called “must carry” programming regularly tilts right-wing, often mirroring the libertarian views of its executive chairman, David Smith.
Sinclair regularly produces politically charged commentary from its offices in Hunt Valley, Md., that its stations around the country are required to broadcast. In July, Sinclair increased the air time for Boris Epshteyn, the former Trump campaign adviser and White House aide who was hired earlier this year as the company’s chief political analyst. Baltimore Sun media columnist David Zurawik called Epshteyn’s commentaries “as close to classic propaganda as anything I have seen in broadcast television in the last 30 years.”
Prior to July, Epshteyn’s commentaries previously run three times week on a must-run basis. Sinclair, which has contended that such material is a small amount of its total output, didn’t immediately respond to a request for comment on its potential filing.
Sinclair shares on Wednesday rose 2.5% to $32.35, trimming its 2017 decline to 3%. Tribune Media gained 1.1% to $41.23. Its shares have run up 17.8% in 2017 on the acquisition news.