Tribune, Sinclair Merger Ends With a Thud

The proposed $3.9 billion merger between Tribune Media Co. (NYSE: TRCO) and Sinclair Broadcasting Group Inc. (NASDAQ: SBGI) was never terribly popular with anyone except the two companies. Now one of them doesn’t like the deal either.

Tribune Media announced Thursday morning that it has terminated the merger deal with Sinclair and that it has sued its would-be acquirer for breach of contract. Tribune Media said in its announcement that it would post a copy of the lawsuit at its website once it has been made publicly available by the court.

Last month the Federal Communications Commission (FCC), citing “serious concerns,” referred the proposed merger to an administrative law judge. FCC chairman Ajit Pai said at the time:

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.

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That ruling appears to be what pushed Tribune Media into terminating the deal. The company’s CEO, Peter Kern, said:

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 timeframe, if ever. 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.

Tribune Media’s decision to terminate the deal simply speeded up the nearly inevitable result of the administrative hearing. When the FCC sends a merger to an administrative law judge, the deal is as good as dead.

Sinclair has had nothing to say so far Thursday morning, but when the FCC made its announcement last month, the company denied misleading the agency and said that the merger’s structure was typical of the type used by broadcasters over the years.

While the spotlight shines on the broken merger agreement, Tribune Media also reported quarterly results this morning that exceeded expectations. Adjusted diluted earnings per share (EPS) of $0.99 blew past the consensus estimate of $0.64 and revenue of $489.4 million topped an estimate of $482.55 million. In the same period last year, Tribune Media reported EPS of $0.36 and revenue of $469.5 million.

In Thursday’s premarket session, Tribune Media stock traded up about 1.1%, at $34.00 in a 52-week range of $31.61 to $43.71. Sinclair stock traded down about 3.1%, at $26.25 in a 52-week range of $25.13 to $40.15.

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