Sinclair Draft HDO Alleges Lack of Candor, O'Rielly Proposes Schedule for ALJ Process
The FCC draft hearing designation order (HDO) narrowly identifies lack of candor in Sinclair’s planned divestiture of WGN-TV Chicago, without listing specifics. Such details will be the focus of an administrative law judge proceeding (see 1807160048), officials told us. Commissioner Mike O’Rielly, who hasn’t voted, proposed edits to require the ALJ process to adhere to a schedule. His proposed changes wouldn’t impose a deadline for a ruling, an official said.
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Communications attorneys said such a schedule could violate Administrative Procedure Act rules. An official said there hadn’t been pushback against O’Rielly’s proposed changes. Many agreed that HDO circulation indicates a breakdown of communication between the agency and Sinclair.
The future of Sinclair/Tribune could turn on whether FCC identification of deceptive practices in planned divestitures is a threat to its existing licenses, analysts, broadcasters and academics said in interviews Tuesday. Sinclair's options include withdrawing the deal or seek to restructure the divestitures that drew agency fire. “This would be the death knell to any other deal; I’m not sure it is for Sinclair,” said University of Delaware School of Public Policy and Administration professor Danilo Yanich. Sinclair's HDO is seen as a sign that other big deals could face scrutiny, such as Sprint/T-Mobile (see 1807170041).
“We deny such allegations in the strongest possible manner,” said Sinclair Monday night. “During these discussions and in our filings with the FCC, we have been completely transparent about every aspect of the proposed transaction,” the TV-station owner said. “Until we have reviewed the order it is difficult to explain the potential issues it might create for the transaction,” Tribune said Tuesday. Sinclair said it's “prepared to address” objections based on divestiture buyers’ relationships with Sinclair.
The HDO’s impugning of Sinclair’s candor could technically lead to the FCC finding Sinclair isn’t fit to hold its existing licenses, though that isn’t expected, broadcast attorneys said. Concerns over the effects of the FCC finding a licensee has shown a lack of candor generally leads lawyers to advise clients to always disclose past violations, one said. To avoid having a hearing opened on deceptive practices, Sinclair could seek to withdraw the deal or restructure the questionable divestitures before the HDO is issued, attorneys and analysts said. Sinclair “could seek to act quickly to make some sort of accommodation,” said Loyola University finance professor Karyl Leggio.
That the FCC reached the point of circulating the HDO may indicate such an accommodation could be difficult to reach, industry officials said. In large mergers such as Sinclair/Tribune, it’s typical for companies to have some idea of the direction the agency is heading, allowing the companies to change course before a formal rebuke like the HDO occurs, attorneys said. For Sinclair not to have known the agency was leaning so far against the transaction “in a deal of this magnitude” is “very surprising,” Yanich said.
If the FCC is open to allowing Sinclair to restructure divestitures, it could be possible for the deal to continue, said Noble Capital Markets analyst Michael Kupinski. Sinclair would have to find alternate buyers, he said. Alternate owners that don’t have sharing relationships with Sinclair could change the Tribune buy’s attractiveness to Sinclair, depending on how important continuing revenue from sidecar stations is to the transaction, an industry official said. Industry officials have said it would be difficult for Tribune to find a buyer other than Sinclair.
If the deal goes into a hearing before an ALJ, it’s not likely to survive, industry officials said. “Hearings are a big problem because they take forever and business transactions don’t wait long enough,” said Fletcher Heald attorney Peter Tannenwald. Keeping the transaction on hold while waiting for a hearing process to resolve would involve “massive cost” and uncertainty for Sinclair and Tribune, Leggio said. The uncertainty could be mitigated by the schedule that O’Rielly advocated, but if those constraints invite an APA challenge the process could be drawn out further, said Georgetown University Institute for Public Representation co-Director Angela Campbell. Large deals that face an HDO generally dissolve, said Gray Television Deputy General Counsel Robert Folliard. “Having your company in limbo is not tenable.”
Rep. Tony Cardenas, D-Calif., lauding the HDO, has often slammed the deal (see 1711020038 and 1803230068). It would “give Sinclair the power to reach 3 out of four Americans' homes, more than what current law allows,” he said Monday: “I am encouraged” by Pai's action. Critics must “continue to pay attention until the merger is completely rejected,” Cardenas said.