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Sinclair-Tribune Merger Hits Roadblock as FCC Chief Opposes Divestiture Plan, Proposes Legal Hearing

WASHINGTON — FCC Chairman Ajit Pai said that he has “serious concerns” about Sinclair Broadcast Group’s plans to merge with Tribune Media, adding that the agency cannot approve the transaction as is.

Pai has proposed that the merger deal to be sent to an administrative law judge for review.

“Based on a thorough review of the record, I have serious concerns about the Sinclair/Tribune transaction,” Pai said in a statement. “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’s move is a surprise given that he has faced strong criticism for what opponents view as his cozy relationship with Sinclair leaders. Sinclair released a statement later in the day saying executives were “shocked and disappointed” by Pai’s move. The company emphasized that the ownership structure proposed in its divestiture plan are “consistent” with structures that the FCC has approved in the past for Sinclair and other broadcasters.

Pai’s statement continued, “When the FCC confronts disputed issues like these, the Communications Act does not allow it to approve a transaction. Instead, the law requires the FCC to designate the transaction for a hearing in order to get to the bottom of those disputed issues.  For these reasons, I have shared with my colleagues a draft order that would designate issues involving certain proposed divestitures for a hearing in front of an administrative law judge.”

Pai has the votes on the FCC to approve the order. A source said Commissioner Brendan Carr was voting for it, and Commissioner Jessica Rosenworcel, a Democrat, said she also favors the move. In a statement, she said Pai’s decision was “welcome” and would vote in favor of Pai’s proposal.

“As I have noted before, too many of this agency’s media policies have been custom built to support the business plans of Sinclair Broadcasting,” Rosenworcel said. “With this hearing designation order, the agency will finally take a hard look at its proposed merger with Tribune. This is overdue and favoritism like this needs to end.”

Commissioner Michael O’Rielly said that he only support sending the merger to the administrative judge if there are “sufficient and defined timelines” for the hearing.

The $3.9 billion transaction that would create an unprecedented giant in local broadcasting, as Sinclair would be the largest owner of stations with a reach of almost 59% of the country. Under the plan, Sinclair would ultimately own 215 stations in 102 markets.

Sinclair’s effort to acquire the Tribune stations has been contentious, drawing opposition not just from an array of public interest groups but some cable industry trade associations as well as conservative news outlets like Newsmax, One America News Network and TheBlaze. On Thursday, the group Free Press dispatched a truck that displayed video images of John Oliver and others warning of the merger.

But Sinclair also has had to revise its plans to divest stations to comply with the FCC media ownership cap, which limits broadcast holdings to no more than 39% of the country. In April, Sinclair outlined a list of 23 outlets it plans to sell, but critics said the company was structuring the sales in such a way as to allow the company to continue to manage a number of the divested stations or to exert influence over the outlet.

Pai’s opposition to the divestiture plan could force Sinclair to agree to a much higher volume of station sales to secure approval of the deal. The merger was first proposed in May, 2017. Proceedings with an administrative law judge typically take several months to over a year, adding even further delay.

Opponents of the Sinclair-Tribune deal were quick to applaud Pai’s move.

“After a lengthy and fair process, Chairman Pai acted in a non-partisan manner in making this decision – a marked departure from the Commission’s partisan actions during the Obama administration,” Newsmax CEO Chris Ruddy said. “Republicans, Democrats and those that are concerned about the concentration of media power should join me in commending Chairman Pai for his independence and integrity.”
The American Cable Association, a trade group for small cable operators, echoed Ruddy’s sentiment, calling the proposed merger “a doomed endeavor.”
“From the beginning, ACA has insisted that the transaction is unlawful and certain to create numerous consumer harms, such as higher retransmission consent fees,” ACA president-CEO Matthew Polka said. “It’s well past time for Sinclair to realize that its effort to engage in massive media consolidation has failed and that it should withdraw the transaction without delay so the FCC no longer needs to devote any of its limited resources to a doomed endeavor.”
The Department of Justice has yet to publicly give its sign off to the deal, even though there have been rumors since the start of the year that its green light was imminent.
The Sinclair-Tribune transaction has drawn an extra amount of attention for a broadcast station group merger, in part because of Sinclair’s practice of mandating that its stations run conservative commentaries on its local newscasts. Sinclair has defended its content practices, and noted in a recent FCC filing that such commentaries were just a fraction of what it spends on local programming.
Here is Sinclair’s full statement:
Sinclair was shocked and disappointed today by the news that FCC Chairman Pai was circulating an order proposing to designate our acquisition of Tribune for an administrative hearing. Although the actual Hearing Designation Order (HDO) has not yet been released, press reports indicate that a leaked version of the HDO suggests that Sinclair may have engaged in misrepresentation or lack of candor. To the extent that the HDO does in fact include any such allegations, we deny such allegations in the strongest possible manner.

Throughout the FCC review process of this transaction, we have had numerous meetings and discussions with the FCC’s Media Bureau to make sure that they were fully aware of the transaction’s structure and basis for complying with FCC rules and meeting public interest obligations. These structures are consistent with structures that Sinclair and many other broadcasters have utilized for many years with the full approval of the FCC. During these discussions and in our filings with the FCC, we have been completely transparent about every aspect of the proposed transaction. We have fully identified who the buyers are and the terms under which stations would be sold to such buyer, including any ongoing relationship we would have with any such stations after the sales. We have filed all relevant agreements documenting such terms as required by FCC rules.

While we understand that certain parties which oppose the transaction object to certain of the buyers based on such buyers’ relationships with Sinclair, a situation we are prepared to address if the FCC agrees with such views, at no time have we 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.

We were heartened by the Statement released by Commissioner O’Rielly objecting to ‘blindly sending decisions to the Commission’s Administrative Law Judge (ALJ).’ While we understand that Commissioner O’Rielly was specifically objecting to the lack of defined timelines in the ALJ process, we hope that the Commissioner O’Rielly and the other FCC Commissioners will also consider the appropriateness of blindly designating matters for hearing which have been fully disclosed to the FCC and which fully comply with FCC rules and widespread industry precedent.

We are prepared to resolve any perceived issues and look forward to finalizing our acquisition of Tribune Media. The proposed merger of Sinclair Broadcast Group and Tribune Media will create numerous public interest benefits and help move the broadcast industry forward at a time when it is facing unprecedented challenges. We look forward to working with regulators to make the merger a reality.

Cynthia Littleton contributed to this report.

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