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Sinclair Broadcast Group Sets $3.9 Billion Deal to Acquire Tribune Media

Sinclair Broadcast Group has set a $3.9 billion cash-and-stock agreement to acquire Tribune Media, a deal that will bring more than 200 TV stations under one roof and vault Sinclair into the big leagues of national TV.

“This is a transformational acquisition for Sinclair that will open up a myriad of opportunities for the company,” said Chris Ripley, president-CEO of Sinclair. “The Tribune stations are highly complementary to Sinclair’s existing footprint and will create a leading nationwide media platform that includes our country’s largest markets. The acquisition will enable Sinclair to build ATSC 3.0 (Next Generation Broadcast Platform) advanced services, scale emerging networks and national sales, and integrate content verticals. The acquisition will also create substantial synergistic value through operating efficiencies, revenue streams, programming strategies and digital platforms.”

The deal values Tribune at $43.50 per share, a more than 25% premium over Tribune’s average in February before its share price was buoyed by acquisition rumors. Sinclair will also assume $2.7 billion in net debt from Tribune. Tribune shares closed Friday at $40.29. Sinclair shares have been on an upswing since January, closing Friday at $36.95. Tribune shareholders will receive $35 in cash and the rest in Sinclair stock. Sinclair shares soared more than 7% as the market opened on Monday but they were down 2.2% to $36.12 at the closing.

The breadth of the combined company is eye-popping, even after two decades of consolidation of TV station ownership. The combined entity would own 223 TV stations serving 108 markets, including 39 of the top 50. The group’s stations would reach some 72% of U.S. TV households. That’s nearly twice the reach of its nearest broadcast competitors: Nextstar (39%), CBS (38%) and Fox (37%). The deal anticipates further relaxing of FCC media ownership rules that at present limit TV station ownership to 39% of U.S. TV households. The FCC’s calculation of Sinclair-Tribune’s reach will be far lower than 72% thanks to the decision made last month to restore the “UHF discount” rule. That rule stipulates that UHF stations are only counted at half of their actual market size (for purposes of calculating whether a group is reaching the 39% cap limit) compared to full-power VHF stations. The majority of Sinclair and Tribune’s stations are UHF outlets.

Fox made an eleventh-hour effort to snatch away the Tribune stations in a joint bid with private equity giant Blackstone. But Sinclair and Tribune were already well on their way down the aisle. Plus, a Fox deal would have presenting station overlap issues in the largest markets of New York, Los Angeles and Chicago, where Fox already owns two stations. That would likely have been a red flag for regulators even in the hands-off environment promised by Trump’s FCC.

Tribune Media’s assets include 42 TV stations, WGN America, WGN Radio and a 31% stake in Food Network valued at $1.6 billion-$1.8 billion. Tribune also has a 32% stake in CareerBuilder.com and it has real estate holdings in major cities that are in the process of being sold. Sinclair said it expected the proceeds from those sales to reach $650 million-$700 million.

“Today’s announcement is the culmination of an extensive strategic review, which has delivered significant value to our stockholders,” said Tribune CEO Peter Kern. “Since we announced the strategic review 15 months ago, we have streamlined the business, monetized non-core assets, strengthened our balance sheet and returned more than $800 million to stockholders — all of which has resulted in a 50% increase in stockholder value.  We are extremely proud to join Sinclair, and we’re excited that Tribune stockholders and employees will have the opportunity to participate in the long-term growth of the combined company.”

For Sinclair, the expansion with Tribune will increase its market clout in TV but it will also extend its geographic footprint in a way that is vital to the company’s vision of using the broadcast TV bandwidth of its stations to provide data services and interactivity on a scale designed to compete with wireless and digital media heavyweights. Sinclair chairman David Smith, son of company founder Julian Sinclair Smith, is known for his engineering acumen. He’s long had a vision of revamping the technical architecture of broadcast TV to make local stations more competitive.

“Television broadcasting is even more relevant today, especially when it comes to serving our local communities,” Smith said. “Tribune’s stations allow Sinclair to strengthen our commitment to serving local communities and to advance the Next Generation Broadcast Platform.  This acquisition will be a turning point for Sinclair, allowing us to better serve our viewers and advertisers while creating value for our shareholders.”

The sides had been talking on and off for six months but the deal terms came together quickly in the past few weeks after the FCC took its first steps to ease media ownership rules, paving the way for Sinclair to add Tribune’s 42 stations to its own roster of 173 stations serving more than 80 markets. The size and scope of the transaction promises to bring a heavy level of scrutiny on the deal, from regulators and media watchdog groups. Sinclair acknowledged in announcing the agreement that station sales may be necessary to secure approval of the transaction. Sinclair said it expects to close the deal in the fourth quarter.

Sinclair already owns stations aligned with every major English-language broadcast network and three Univision outlets. The Tribune acquisition will extend the company’s clout in dealmaking, with networks and in restransmission consent negotiations with MVPDs, by adding 14 Fox affiliates and 12 CW affiliates, as well as affiliates of CBS (six), ABC (three) and NBC (two). With the Tribune stations added in, Sinclair will be the largest owner of ABC, Fox, CW and MyNetwork TV affiliates.

Ripley was quick to point out to Wall Street analysts that Tribune stations would see their retrans rates rise immediately under Sinclair ownership. Sinclair is known for its hardball negotiating style with MVPDs and its network partners. Sinclair predicted the addition of Tribune stations would boost its cash flow by 40%. The Food Network stake alone is projected to yield a $180 million dividend this year.

But the deal will also leave Sinclair with a heavy debt load that will amount to five-times-earnings ratio for at least the first year. That could put pressure on the company to sell off stations and other assets to help pay down debt.

Tribune put itself on the block more than a year ago. The Sinclair deal caps a wild decade for the Chicago-based company with roots that go back to the founding of the Chicago Tribune newspaper in 1847.

In March 2007, what was then Tribune Co. was acquired by Chicago-based real estate baron Sam Zell in a transaction structured as an Employee Stock Ownership Plan that gave him the option of acquiring 40% of the equity on the cheap and loaded the company up with debt. That deal proved to be disastrous for most Tribune employees when less than two years later, the company filed for bankruptcy. After four years in Chapter 11, the company emerged in January 2013 and resumed functioning as a publicly traded entity, with former debtholders Oak Tree Capital Management, Angelo Gordon and Co. and JP Morgan Chase as its majority owners.

Under its newly appointed CEO Peter Liguori, Tribune bought more TV stations and tried to rev up its entertainment operations, bringing original scripted programming to the WGN America channel. It also sought to build up its data services business with acquisitions such as listings and metadata provider Gracenote, which was sold to Nielsen earlier this year. Meanwhile, Tribune separated itself from its publishing arm in 2014. That company, now named Tronc, has also been the subject of acquisition rumors in recent months.

Liguori exited as CEO in March as it became clear Tribune’s majority shareholders were focused on a sale.

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