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Appeals Court Removes FCC Roadblock to Sinclair-Tribune Merger

The federal appeals court in Washington, D.C. has removed a temporary regulatory hurdle to Sinclair Broadcast Group’s $3.9 billion acquisition of Tribune Media.

The court of appeals for the D.C. circuit on Thursday removed the temporary stay granted on June 1 on the FCC’s decision to reinstate its so-called UHF discount in connection with its rules regarding limitations on the number of TV stations that a single entity can own.

The UHF discount is crucial to allowing Sinclair to acquire Tribune Media’s 42 stations, a deal that would make Sinclair by far the nation’s largest broadcast group with more than 220 stations covering some 72% of U.S. TV households. The merger agreement was announced May 8 but the federal court’s decision to grant a stay on the UHF discount issue raised questions about whether the deal would pass regulatory muster.

“We are pleased that the Court denied the motion for an emergency stay of a rule that had been in effect for decades,” Sinclair said in a statement. “We remain confident that the Court will conclude on the merits that the UHF discount should remain in place until a thorough review of the current ownership rules is completed.”

The UHF discount is connected to the FCC’s rule that no entity can own stations reaching more than 39% of U.S. TV households. A group’s total reach is calculated by the size of each station’s market. The UHF discount allows owners to count UHF outlets at half of their market’s actual reach to account for the fact that stations on the UHF band (channel positions 14-69) have weaker signals than VHF stations (channel positions 2-13).

The UHF discount is crucial for the largest station groups to maintain ownership of dozens if not hundreds of stations. The Sinclair-Tribune deal would not be permitted, unless a waiver was granted, without the discount.

The FCC last September eliminated the long-standing UHF discount rule on the rationale that the historic advantage that VHF stations had over UHF stations had been leveled out by the fact that so many viewers receive local stations via MVPDs, including the nascent breed of digital MVPDs. Existing station groups were grandfathered in under the old rule but new acquisitions, such as Sinclair-Tribune, would be weighed without the discount.

With a 2-1 vote in April, restoring the UHF discount was among the first initiatives undertaken by new FCC chairman Ajit Pai after his appointment by President Trump. The D.C. circuit court’s decision to stay the FCC’s decision raised the specter of problems for Sinclair-Tribune.

On Thursday, a three-judge appellate panel rejected the request by media watchdog orgs including Free Press for a long-term stay on the FCC’s April decision while the court considers the larger question of the UHF discount and media ownership rules.

The court ruling provided a jolt to shares of Sinclair and Tribune. On a down day for the markets overall, Sinclair shares were up 3% while Tribune was up more than 5%.

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