Tribune Ends Deal With Sinclair, Dashing Plan for Conservative TV Behemoth

KTLA in Hollywood, Calif., was among the television stations that Sinclair Broadcasting Group tried to acquire from Tribune Media.

President Trump cheered when Sinclair Broadcast Group, the nation’s largest operator of local TV stations and a leading voice for conservative views, made a $3.9 billion bid to buy Tribune Media. The consolidation would have created a company that could reach seven out of 10 American households.

But not everyone was thrilled about the prospect of a company that could potentially challenge Rupert Murdoch’s Fox News as the country’s pre-eminent media outlet on the right.

And once a key government agency turned against the deal, it became clear Sinclair would not be realizing its dream. That was made official on Thursday, with the announcement by Tribune that it was ending its merger agreement with Sinclair and would sue for breach of contract.

In a statement that accompanied its second-quarter earnings report, Tribune said that Sinclair had not made good on its commitment to use its best efforts to obtain regulatory approval of the merger as quickly as possible by selling off TV stations and other assets.

Instead, Tribune said, Sinclair tried to maintain control and engaged in “unnecessarily aggressive and protracted negotiations with the Department of Justice and the Federal Communications Commission.”

Sinclair did not respond to requests for comment.

The deal’s official demise completed a stunning reversal for Sinclair. Earlier this year, the merger seemed almost assured of being completed, thanks in part to policy changes proposed or enacted by the F.C.C. and pushed for by Sinclair. The changes included an easing of the cap on how many stations a broadcaster may own and a relaxing of a restriction on advertising revenue and other resources shared by TV stations. The company had also become a favorite of Mr. Trump and has insisted that of all its stations run regular commentary segments that echo support administration policies.

But last month, Ajit Pai — the F.C.C. chairman who is the subject of an investigation by the office of the commission’s inspector general regarding the policy changes that were beneficial to Sinclair — said he had “serious concerns” about the broadcaster’s deal with Tribune. Mr. Pai asked the agency’s four commissioners to hand off its review of the merger to an administrative law judge to determine the legality of Sinclair’s proposal.

On Twitter, Mr. Trump called that move “Disgraceful!” and added that the combined company “would have been a great and much needed Conservative voice for and of the People.”

Despite the president’s displeasure, other conservative media groups have praised the moves by the F.C.C. and Tribune. Christopher Ruddy, the chief executive of Newsmax Media, had opposed the deal, saying in a statement on Thursday that such a dominant combination would have “posed serious risks for diverse and balanced news in America’s heartland.”

Mr. Ruddy saw Tribune’s decision to pull out of the deal as a personal victory. “I like taking on hopeless causes, especially when I believe the facts and good sense argue for such a cause,” he said. “Opposition to this merger brought together members of both parties in Congress, as well as groups and individuals across the political spectrum.”

The agreement between Sinclair, which is led by David D. Smith, and Tribune had allowed either to walk away if the deal did not close by Wednesday. Tribune said in its statement that it would seek compensation for all losses incurred from what it called Sinclair’s breach of the agreement, an amount it pegged at more than $1 billion.

The lawsuit details a litany of combative exchanges between Sinclair and the Justice Department. In November, the agency informed Sinclair it would need to sell off stations in at least 10 markets to obtain approval, but Sinclair refused, “deciding instead to antagonize D.O.J. officials,” the suit read. Meetings became so contentious, it said, that Sinclair effectively threatened the department to “sue me.”

Sinclair required approval from the Justice Department and the F.C.C., a process typically undertaken at the same time. But Sinclair preferred to broker an agreement first with the Justice Department, as it considered the F.C.C., and Mr. Pai, to be more friendly to mergers.

In a December letter addressed to the head of the Justice Department’s Antitrust Division, Makan Delrahim, Sinclair contrasted his position to that of Mr. Pai. “It was so refreshing to see the F.C.C., under Ajit Pai’s leadership, undertake a fundamental reform of its media ownership rules to relax regulations,” the letter read. It continued, “we have been surprised, therefore, by the extent to which the Division has thus far appeared unwilling to recognize how completely the world has changed,” referring to the Justice Department.

To satisfy rules that prohibit one company from owning the airwaves on such a dominant scale, Sinclair had proposed selling 23 television stations after the deal was completed. But under the proposal, several of the stations would still have effectively fallen within Sinclair’s operational control — a fact that the F.C.C. said raised “significant questions as to whether those proposed divestitures were in fact ‘sham’ transactions.”

In extending Sinclair’s presence to 70 percent of households in the United States, the deal would have given the broadcaster access to major markets like Chicago, Los Angeles and New York. Consumer and media groups raised alarm over such a high degree of consolidation in a single broadcast group.

The disintegration of the deal between Sinclair and Tribune upended another pending transaction: Sinclair’s agreement to sell seven Tribune-owned stations to 21st Century Fox for $910 million as part of the effort to satisfy regulators. Tribune has terminated that sale because it was contingent on the merger with Sinclair.

Tribune must now revisit its plans for selling itself, although the company may not have much trouble seeking new buyers. Local television businesses have gotten a lift from political advertising spending in the run-up to the hotly contested midterm elections. Tribune’s second-quarter earnings report showed that the company had more than doubled its revenue from political advertising to $24 million compared with the same period in 2014, the last midterm election cycle.

The boom in political ad spending, coupled with the rule that allows one company to reach a much larger swath of the television audience, could jump-start more mergers.

After Mr. Murdoch completes his deal to sell most of the assets of his 21st Century Fox to the Walt Disney Company, he will be left with the Fox News cable network and 28 Fox broadcast stations. In a bid to expand his broadcast business, he could restart talks with Tribune to buy the seven stations whose sale was previously agreed to, or possibly more.

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