Sinclair Divestiture Trust Not Unusual, Under More Scrutiny, Brokers Say
Sinclair’s plan to use a divestiture trust and spin off unspecified stations in buying Tribune isn’t that unusual, but the degree to which it relies on sidecar operations is more than expected, media brokers, deal opponents and broadcast attorneys told us. An amended divestiture plan submitted last week (see 1803070050) may indicate FCC officials also have or had reservations about Sinclair’s proposals, lawyers said. The plan was filed after a meeting called by the Media Bureau. Some sources saw it as Sinclair working with the agency to fine tune its plans, but others said the meeting could be seen as an indication the first divestiture plan wasn’t acceptable. Sinclair didn’t comment.
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Divestiture trusts aren’t unusual in broadcast transactions, said media broker Frank Kalil, president of Kalil & Co. “Stations aren’t fungible,” Kalil said. “They take time to market” because of difficulty finding buyers and regulatory requirements, he said. Divestiture trusts are a reaction to that timing issue, allowing a licensee to unload a station at the pace such a transaction requires, said MVP Capital Managing Director Elliot Evers. Evers oversees the divestiture trust from Entercom/CBS. Without such trusts, stations needing to divest to have a merger approved would face pressure to sell divestitures quickly to get their deals done, Kalil said. A trust helps to take some of the pressure off and reduce leverage of prospective station buyers who know the divestor has to sell, he said.
It’s also not uncommon for broadcasters not to specify what stations are going to be placed in the trust ahead of time, Evers and Kalil said. “Overpopulating” the trust is done to give broadcasters options, Evers said. This aspect of the plan is receiving more attention because Sinclair/Tribune is under increased scrutiny, Kalil said. “Most of the time these things are done quietly.” Divestiture trusts associated with radio behemoths Cumulus and iHeartRadio have lasted for many years, but current regulations make that unlikely to happen for Sinclair’s trust, Evers said.
Under Sinclair’s plan, it appears the stations that will be divested could remain under Sinclair’s control despite being ostensibly owned by other companies, said Free Press Policy Analyst Dana Floberg. “The people they are spinning stations off to have connections” to the family of Sinclair Executive Chairman David Smith, Floberg said. Though other broadcasters use trusts and sidecar arrangements, Sinclair has a long history of doing so in particularly bold ways, Floberg said.
Sinclair recently altered its divestiture plan so some stations in markets where it's seeking top-four duopolies wouldn’t end up in the divestiture trust, but it’s possible the FCC could object to some of the changes, a broadcast attorney said. The American Cable Association flagged a proposal (see 1803130042) for waiver that would allow Sinclair to temporarily own some of the to-be-divested stations instead of sticking them in the trust as having retransmission consent implications. ACA said the temporary transfer of the stations to Sinclair could cause the stations' retrans rates to be set to Sinclair’s rates, depending on the wording of after-acquired clauses in the stations’ retrans deals, which the lawyer affirmed. Though the FCC is seen as wary of getting involved in retrans deals, the agency could object to Sinclair benefiting from stations it isn't allowed to own, the industry attorney said.