Sinclair Inks Deal to Buy Tribune for $3.9B

With the acquisition of Tribune's 42 stations, Sinclair would reach 72% of U.S. households

Sinclair Broadcast Group has struck a deal with Tribune Media to buy the 42-station broadcast group for $3.9 billion, the largest acquisition in Sinclair's history, the companies announced Monday.

A deal would give Baltimore-based Sinclair further control of the country’s TV stations, which could be enabled by the FCC’s recent vote to ease ownership caps.  With the addition of Tribune stations, Sinclair would reach 72% of U.S. households, according to president and CEO Chris Ripley. Nexstar Media, the group with the second-highest reach, covers 39% of the country, according to Sinclair.

Sinclair currently owns or runs 173 TV stations, as well as cable's The Tennis Channel and multicast networks including TBD, Comet TV and This TV.  In addition to its 42 television stations in 33 markets, Tribune owns cable network WGN America, digital multicast network Antenna TV, minority stakes in the TV Food Network and CareerBuilder, and a variety of real estate assets.

Sinclair said that a merger would also give Sinclair immense digital reach, as Tribune's currently reaches about 60 million uniques and Sinclair reaches 50 million.

Ripley said Sinclair's purchase of Tribune was driven as much by the opportunity it offers for creating and delivering enhanced services under the next-gen broadcast standard, ATSC 3.0, as it was for the financial benefits of an acquisition. Sinclair has been the industry's leading proponents of the adoption and implementation of the IP-based broadcast standard. 

He also said he believes Sinclair can turn WGNA into a money-maker by scaling back high-price originals in favor of cheaper options including lower-cost series and syndicated content.

Sinclair expects to close the purchase during the fourth quarter of 2017.

Sinclair's purchase of Tribune will give it 28% of the country's Fox affiliates—more than any other station group. It also will have the largest number of ABC, CW and MyNetwork affiliates, Ripley said.
Tribune's portfolio includes 14 Fox affiliates, 12 CW affiliates, six CBS affiliates, three ABC affiliates, two NBC affiliates, three MyNetworkTV affiliates and two independent stations.

Combining assets will give Sinclair leverage in negotiating affiliate agreements with the networks, leading to increased retransmission revenue, the company said. Other savings opportunities include combining staff, reducing outside services and creating a larger content creation and distrubution network, it said.

“This is a transformational acquisition for Sinclair that will open up a myriad of opportunities for the company,” Ripley said in a statement. “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 is subject to the FCC's approval. Sinclair may be required to sell certain stations in markets where it currently owns stations. Divestitures will be determined through the regulatory approval process.

In an investors' call, Ripley said he does not believe merging with Tribune will require divestiture, although there are potential overlap issues in 14 markets. "We don't think we need to sell any of them," he said. "The overlaps have no impact on overall competition."

If regulators do require divestiture, however, it will likely involve stations in St. Louis and Salt Lake City, he said. While Sinclair would sell if need be, the group sees swaps as "all the better," he said.

According to Sinclair, the merger's immediate financial value creation includes: Core TV business (stations & WGNA) expected pro forma average 2017/2018 EBITDA of at least $650 million; Implied multiple of less than 7.0x EBITDA on the core television and entertainment business; and more than 40% average 2016/2017 free cash flow per share accretion

In April, Sinclair struck a deal to purchase Bonten Media and Cunningham Broadcasting for $240 million, adding 14 stations in eight markets to its footprint.

Nexstar Media and a joint Fox/Blackstone venture had been reported as other potential bidders for Tribune. According to Reuters, Fox never submitted a bid.

The Tribune deal comes after the broadcast group announced in 2016 that it would be undergoing a strategic review. Last year, Tribune Media sold its data company Gracenote to Nielsen; It also sold real estate assets including its iconic Tribune Tower in Chicago.

Tribune Media was created in 2014 when the broadcast group spun off from Tribune's publishing arm. The company restructured after a wrenching four-year bankruptcy.

In March, CEO Peter Liguori stepped down from the position, which he held since 2013. He has not been replaced.

Adonis Hoffman, former chief of staff to FCC Commissioner Mignon Clyburn and chairman of Business in the Public Interest, said any divestitures by Sinclair would create opportunities for other groups “looking to bulk up.

“The free market is alive and well in broadcast,” Hoffman said.

Hoffman sees the deal as a way for the two broadcast groups to get the kind of scale that will provide more "balance" in retransmission deals with large MVPDs.

FCC Chairman Ajit Pai has talked about the need for reviewing ownership regulations given that big cable companies can merge. The 30% cap on cable operators’ national sub footprint was thrown out by the courts back in 2009 as arbitrary and capricious while broadcasters remain limited by local duopoly rules and the 39% national ownership cap.