FCC Says Sinclair May Have Misrepresented Tribune Merger Details
WASHINGTON — The FCC asserts that there are “material questions” of whether Sinclair engaged in “a potential element of misrepresentation or lack of candor” in its effort to secure FCC approval of its $3.9 billion buyout of Tribune Media.
Sinclair has denied those claims.
The FCC vote to send the merger to an administrative hearing will further delay the transaction and could jeopardize the deal altogether.
The FCC’s decision to send the case for a legal hearing came even after Sinclair’s last-minute effort to revise its station divestiture plan and salvage its $3.9 billion acquisition.
But although Sinclair revised its plan for divestitures, the FCC said that the issues of misrepresentation remain.
“Given the seriousness of the issues presented, we direct the Media Bureau to hold in abeyance all other pending applications and amendments thereto related to the overall proposed Sinclair-Tribune transaction until the issues that are the subject of this Hearing Designation Order have been resolved with finality,” the FCC said.
The FCC zeroed in on the business ties between Sinclair chairman David Smith and businessman Steven Fader in connection with the plan to sell Tribune’s WGN-TV Chicago to a new entity controlled by Fader for $60 million. That plan raised hackles from merger opponents because the purchase price was so far below fair market value for a Chicago TV station. Fader is CEO of Atlantic Automotive Group, in which Smith has an equity interest and also sits on its board. The commission’s order noted that Fader had no prior broadcast TV experience, and the transaction was structured as to give Sinclair sway over the station’s operations.
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“Sinclair would have owned most of WGN-TV’s assets, and pursuant to a number of agreements, would have been responsible for many aspects of the station’s operation. Finally, Fader would have purchased WGN-TV at a price that appeared to be significantly below market value, and Sinclair would have had an option to buy back the station in the future. Such facts raise questions about whether Sinclair was the real party in interest under Commission rules and precedents and attempted to skirt the Commission’s broadcast ownership rules,” the FCC said in the order. (The complete order can be found here.)
The order also questions Sinclair’s proposal to sell Tribune’s stations in Dallas (KDAF-TV) and Houston (KIAH-TV) to Cunningham Broadcasting, another company with ties to Sinclair and the Smith family.
The administrative hearing could add several months, and maybe much longer, to regulatory approval of a merger that has already experienced a number of bumps in the road.
On Wednesday, Sinclair said it would alter its merger plan in an attempt to alleviate concerns raised by FCC chairman Ajit Pai, who said he had “serious concerns about the Sinclair/Tribune transaction.”
“The evidence we’ve received suggests that certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law,” Pai said.
Sinclair’s revised plan calls for it to acquire WGN-TV Chicago as part of the larger transaction. Sinclair is proposing that KDAF-TV and KIAH-TV will be put into a divestiture trust and sold in an arm’s-length transaction by an independent trustee after the Tribune sale is closed.
Sinclair spokesman Ronn Torossian said on Wednesday, “While we understand that certain parties, which oppose the transaction object to certain of the buyers based on such buyers’ relationships with Sinclair, at no time have we withheld information or misled the FCC in any manner whatsoever with respect to the relationships or the structure of those relationships proposed as part of the Tribune acquisition. Any suggestion to the contrary is unfounded and without factual basis.”
The Sinclair-Tribune deal has stirred opposition from many quarters, given that it would make Sinclair by far the nation’s largest TV station owner with more than 200 stations under one roof.
Sinclair’s divestiture plan for the deal has raised hackles from the start. Initially, the company planned to sell WPIX-TV New York and WGN-TV at below-market prices to entities with ties Sinclair. In April, Sinclair revised that plan, deciding to keep WPIX, but sell WGN-TV to Fader and KDAF, and KIAH to Cunningham Broadcasting, which has ties to Sinclair executives.
Sinclair has identified a total of 23 stations that will be sold to comply with federal TV station ownership rules. Sinclair already has an agreement to sell nine medium-sized market stations to Fox Television Stations after the Tribune deal closes. Fox is unlikely to be a contender for the Dallas or Houston stations because it already owns two stations in both of those markets.
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