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Tribune withdraws from Sinclair merger, sues for $1 billion in damages over ‘breach’ of contract

Sinclair Broadcast Group's headquarters in Hunt Valley, Md., in 2004. (Steve Ruark/AP)

A proposed merger that would have created the biggest U.S. television company collapsed Thursday when Tribune Media announced a $1 billion lawsuit against Sinclair Broadcast Group on grounds that the conservative television giant engaged in “misconduct” and precluded U.S. government approving of the deal.

Tribune said it would terminate the $3.9 billion deal and accused Sinclair in a lawsuit of engaging in “belligerent and unnecessarily protracted negotiations” with the FCC as well as the Justice Department, which reviewed the merger over its potential effects on competition. By failing to divest television stations as regulators recommended, Tribune said, Sinclair had “breached” the companies' merger agreement, which required them to make their best efforts to secure federal approval.

The breakdown of the merger — which would have created a national right-leaning television powerhouse — reflects a reversal of fortunes for Sinclair, which pitched the tie-up last year as a “transformational” event and the biggest acquisition in its history.

The merger began to stumble last month after Federal Communications Commission Chairman Ajit Pai highlighted “serious concerns” about the deal, which originally would have reached roughly 70 percent of U.S. households. The FCC raised questions about Sinclair’s plan to sell some key stations to adhere to federal media ownership laws, and it voted to send the matter to an administrative law judge, which is often interpreted as a signal that a transaction may be blocked.

“In light of the FCC’s unanimous decision, referring the issue of Sinclair’s conduct for a hearing before an administrative law judge, our merger cannot be completed within an acceptable time frame, if ever,” said Peter Kern, Tribune’s chief executive officer, in a statement Thursday. “This uncertainty and delay would be detrimental to our company and our shareholders. Accordingly, we have exercised our right to terminate the Merger Agreement, and, by way of our lawsuit, intend to hold Sinclair accountable.”

In response, Sinclair chief executive Chris Ripley said in a statement Thursday that the company is “extremely disappointed that after 15 months of trying to close the Tribune transaction, we are instead announcing its termination.” He said that Sinclair "did not mislead the FCC with respect to the transaction or act in any way other than with complete candor and transparency.”

Ripley asserted that Tribune’s lawsuit is “entirely without merit, and we intend to defend against it vigorously.”

The deal would have greatly expanded Sinclair’s footprint to 233 stations in 108 markets nationwide. As originally proposed, it would have added Tribune’s 42 stations to Sinclair’s roster. And it would have been a victory for right-leaning media in a turbulent political environment in which Republican critics have alleged systemic negative bias on college campuses and social media platforms. Sinclair sought to erect a potential competitor to the likes of Fox News.

The merger even attracted the attention of President Trump, who last month on Twitter criticized federal regulators for getting in the way of what he said would have become a “great and much needed Conservative voice for and of the People.

Before a video that showcased news anchors reading a required script went viral, Sinclair Broadcast Group was not a well-known name. (Video: Erin Patrick O'Connor/The Washington Post)

“Liberal Fake News NBC and Comcast gets approved, much bigger, but not Sinclair,” he added. “Disgraceful!"

Previously, the FCC said its main concern was Sinclair’s offer to spin off stations in Chicago, Dallas and Houston. The agency declined to comment Thursday.

Analysts said Sinclair needed to divest some stations to comply with a national cap, enforced by the FCC, on any single broadcast company’s national audience reach. But Pai, the FCC chairman, said in a statement at the time that the “evidence we’ve received” suggested that Sinclair could still be able to control some of “those stations in practice, even if not in name, in violation of the law.”

In a later filing, the agency asked an administrative law judge to review whether Sinclair had engaged in “misrepresentation and/or lack of candor” as part of its earlier divestment proposal.

At the time, Sinclair strongly defended its merger to the FCC, stressing it would “create numerous public interest benefits and help move the broadcast industry forward at a time when it is facing unprecedented challenges."

“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,” the company said in a July statement.

Sinclair also continued negotiations with Tribune over ways to address regulators' concerns.

In terminating its merger agreement, however, Tribune on Thursday took aim at Sinclair’s behavior, arguing in its lawsuit that Sinclair had been “confrontational with and belittling of DOJ staff.” During negotiations, for example, Sinclair’s general counsel, Barry Faber, challenged the Justice Department’s top antitrust official, Makan Delrahim, telling him at one point, “sue me,” Tribune alleged. In another meeting, Faber accused Delrahim of “misunderstand[ing] the industry,” the suit said.

Tribune also alleged in its lawsuit that it had previously threatened to sue Sinclair in February if it did not divest stations in a way that may have secured at least the DOJ’s support for the merger, prompting Sinclair to revise its offer to the government.

From Sinclair’s perspective, the company “fully complied with our obligations under the merger agreement and tirelessly worked to close this transaction,” said Ripley, its CEO, in response.

Absent the merger, Tribune’s chief executive, Kern, told reporters on an earnings call Thursday that he was “extremely pleased” with the state of Tribune in its current form, yet expressed an openness to mergers with other companies in the future.

Pai’s decision to push for a legal review kicked off a last-minute influence campaign by Sinclair, which hired nearly half a dozen lobbyists last month to argue for the deal in Washington.

The FCC’s move to block the deal was widely viewed with surprise in Washington. Pai has been a staunch advocate for the broadcast industry, repealing numerous legacy regulations that he said prevented economically struggling TV and radio stations from surviving in the digital age. For example, Pai led the charge on reinstating a type of agency accounting method that effectively helps broadcast companies own more stations while remaining beneath the national audience cap.

His efforts, which ultimately benefited large firms such as Sinclair, drew the scrutiny of lawmakers who raised questions about whether Pai may have behaved inappropriately toward the conservative broadcaster.