In other merger news this week, members of the Federal Communications Commission unanimously voted to send the proposed $3.9 billion Sinclair-Tribune merger to an administrative law judge for review, reports Poynter. FCC chair Ajit Pai expressed concern that Sinclair Broadcast Group (NASDAQ: SBGI) might be planning to spin off some of the Tribune TV stations to companies that have ties to the founders of Sinclair, which would be a violation of FCC regulations.
Yesterday, the FCC released its official Hearing Designation Order (HDO) which said that Sinclair Broadcast Group did not fully disclose facts about the proposed merger with Tribune Media (NYSE: TRCO). The FCC said that Sinclair did not disclosure pre-existing business relationships, and it alleged that Sinclair was selling certain properties well below market value. It will be up to the administrative judge to determine if Sinclair misrepresented any material facts or whether the merger would violate the FCC’s broadcast ownership rules.
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“The real party-in-interest issues presented here include a potential element of misrepresentation or lack of candor. Section 1.17(a)(1) of the Commission’s rules states that no person shall, in any written or oral statement of fact, intentionally provide material factual information that is incorrect or intentionally omit material information that is necessary to prevent any material factual statement that is made from being incorrect or misleading. We note that a misrepresentation is a false statement of fact made with the intent to deceive the Commission. Lack of candor is concealment, evasion or other failure to be fully informative, accompanied by an intent to deceive the Commission,” reads the HDO (pp. 10-11).
The FCC’s action could kill the merger. Sinclair vehemently denies the allegations. In a July 16 statement, prior to the filing of the HDO, said the following:
“Sinclair was shocked and disappointed today by the news that FCC Chairman Pai was circulating an order proposing to designate our acquisition of Tribune for an administrative hearing. Although the actual Hearing Designation Order (HDO) has not yet been released, press reports indicate that a leaked version of the HDO suggests that Sinclair may have engaged in misrepresentation or lack of candor. To the extent that the HDO does in fact include any such allegations, we deny such allegations in the strongest possible manner,” read the statement.
Another portion of the statement said that Sinclair had never misled the FCC at any time in any manner and that, while certain parties oppose the transaction “based on such buyers’ relationships with Sinclair,” the company was prepared to address that issue. Though Sinclair denied any wrongdoing, while they awaited the issuance of the HDO, the company issued a second statement, amending certain divestitures.
“While neither Sinclair or Tribune have seen the draft HDO, Chairman Pai’s comments and press reports indicate the FCC is questioning the proposed divestitures in Dallas, Houston and Chicago. Accordingly, in order to address such concerns and to expedite the Tribune transaction, Sinclair has withdrawn the pending divestitures of stations in Dallas (KDAF) and Houston (KIAH) to Cunningham Broadcasting Corporation and Tribune has withdrawn the pending divestiture of WGN in Chicago to WGN-TV LLC,” said Sinclair. “…there can be no question regarding misrepresentation or character given that Sinclair has fully disclosed all terms of all aspects of the transactions it has proposed.”
Tribune Media issued its own statement yesterday.
“Tribune Media has now had the opportunity to review the FCC’s troubling Hearing Designation Order. We are currently evaluating implications and assessing all of our options in light of today’s developments,” their statement said. “We will be greatly disappointed if the transaction cannot be completed, but will rededicate our efforts to running our businesses and optimizing assets.”
My, what a sticky situation! Clearly, with a unanimous vote, members of the FCC have serious concerns that this merger is not in the public interest. At the same time, their allegations that Sinclair misrepresented their company and did not fully disclose previous business relationships is concerning. If it’s true, the deal will fall through. If it isn’t, their reputation has been tarnished, and Tribune Media may very well pull out of the agreement, even if the FCC allows it to proceed. This will be a close case to watch, particularly in light of the DOJ’s appeal of the AT&T-Time Warner merger.