Sinclair Rejiggers Deal for FCC, DOJ Approval: No Trusts, Lighter Top-Four Requests
Sinclair’s latest modifications to its deal to buy Tribune appears designed to make it more palatable to the FCC and DOJ, attorneys and analysts said in interviews. The amended plan does away with divestiture trusts, puts less pressure on the FCC’s new and untried policy on top-four duopolies, and -- as detailed Tuesday (see 1804240076) -- specifies buyers for most of the 23 stations to be divested. Though the deal still includes plans to unload stations to “sidecar” companies seen as affiliated with Sinclair, the latest iteration is expected to be acceptable to Justice because none of the stations operated through sharing agreements will be top-four stations, said Justin Nielson, senior researcher for S&P Global Market Intelligence.
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The department “is currently vetting the divestiture buyers with an approval likely COMING SOON. We also believe that once SBGI is able to announce the final buyer, the FCC will be able to process the license transfers,” Wells Fargo analyst Marci Ryvicker emailed investors, referring to Sinclair's ticker symbol. After Friday oral argument on the UHF discount before the U.S Court of Appeals for the D.C. Circuit (see 1804240072), attorneys said Sinclair could seek to move fast on its proposed deal so it could be granted before a court ruling knocking down the UHF discount makes such an approval difficult.
If the FCC accepts Sinclair’s amended plan, the agency is expected to restart the deal’s paused shot clock and put the new application out for public comment. Though Ryvicker expects a 30-day comment period, industry officials said the agency may seek longer because of the breadth of the transaction, possibly 60 days. Sinclair said it expects the deal to be completed in Q2. Deal opponents Coalition to Save Local Media Wednesday urged the FCC to delay voting. The D.C. Circuit “seemed to indicate the unjustified and outdated UHF discount Sinclair is using in this deal could be completely gutted,” the coalition said. “But if the FCC moves ahead, you won’t be able to unring the bell.” The FCC didn’t comment.
Under the new plan, the deal would leave the new Sinclair/Tribune reaching 37.39 percent of U.S households under the current rules. If the UHF discount goes away -- as some think possible after oral argument -- the combination would be at 58.7 percent. The national cap is 39 percent. The deal includes divestitures in Chicago and Denver that aren’t needed to get the transaction under the national cap, Sinclair said in its amendment. Though the broadcaster wouldn’t comment on the purpose of the additional divestitures, attorneys believe the move is designed to create “headroom” for possible future dealmaking if the cap stays the same.
Analysts and attorneys disagreed whether the timing of the amendment is related to the UHF discount's day in court Friday. Cowen analyst Paul Gallant said the changes seem related to judges' negative reaction, but Fletcher Heald broadcast attorney Dan Kirkpatrick said it’s unlikely Sinclair could have arranged the transactions and restructuring in the amendment on such short notice. Sinclair has been repeatedly submitting versions of the deal and discussing possible changes with the FCC since February, filings show. It’s possible the court’s reaction Friday could have caused Sinclair to pull the trigger on an existing plan more quickly, Kirkpatrick said.
The amended pact, like the previous iteration, asks the FCC to approve top-four duopolies in two markets. The amendment still offers a top-four showing for two stations that were already commonly owned in Indianapolis but replaces the previous version’s proposed duopoly in Greensboro, North Carolina, with one in St. Louis that Sinclair claims doesn’t really require top-four permission and is only included “out of an abundance of caution.” The St. Louis stations are close in ratings and sometimes swap in and out of fourth and fifth place in their market, Sinclair said. The two top-four requests seem like “safe” choices that the agency would likely grant, Kirkpatrick and Nielson each said. The unique circumstances of the two requests also mean an FCC grant of the top-four requests would likely shed little light on the agency’s expectations for future top-four combos, Kirkpatrick said. “Some other broadcaster will still have to be the test case.”
The amended deal withdraws all requests to put stations into divestiture trusts, and repeats a request from the previous version for a temporary duopoly waiver if either of Sinclair’s top-four requests is denied. The American Cable Association had flagged that request as having potential retransmission consent consequences. “Because this is the first request to approve ownership of two Top-Four stations presented to the Commission under the new rules set forth in the Reconsideration Order, a temporary waiver would be appropriate given the uncertainty in the outcome and potential for resulting delay,” Sinclair said.
The latest application follows Sinclair’s “same old patterns,” said Free Press Policy Analyst Dana Floberg. Free Press opposes the proposed deal with Tribune. “A significant number of those stations are being sold to Sinclair shell companies Howard Stirk and Cunningham,” Floberg said. “We've seen these games before. These divestitures would not be truly independent.” Sinclair listed seven stations as being sold to a buyer who hasn’t been announced, widely believed to be Fox based on the markets involved, Nielson said. Fox didn’t comment. The buyer of nine of the divested stations, Standard, is a company recently created for this transaction, Nielson said.