Sinclair Broadcast Group has made it clear it is all in for deregulation as it tries to close its deal to buy Tribune Media’s TV stations while keeping as many stations as possible.
That will reduce the potential M&A activity stemming from the deal, though Equity Research made a back-of-the envelope calculation that the eight stations Sinclair will definitely sell could bring it close to $1 billion in cash.
As promised, Sinclair has resubmitted its $3.9 billion deal to acquire Tribune’s stations to the FCC, even as it continued to negotiate some of the proposed spinoffs with the Justice Department, adjusted to reflect the media deregulation it pushed for. The original deal, proposed in May of 2017, would have given Sinclair control of Tribune’s 42 stations, in addition to the 193 stations Sinclair already owns or operates, with some tweaking neccesary under old and new FCC rules.
The FCC last month paused its review of the deal, and its informal 180-day shot clock, in anticipation of the refiled transaction.
Sinclair wants to own two of the top four stations in three of its markets, something that would have been off limits before the FCC’s deregulation took effect earlier this month.
Sinclair also signaled it will spin off Tribune’s WPIX New York and WGN Chicago (as well as KSWB San Diego) to get under the FCC’s ownership cap, which bans a single broadcaster from reaching more than 39% of all U.S. television households. Sinclair, though, wants to continue to provide services to the New York and Chicago stations. Critics have said not owning a station in markets No. 1 and No. 3, respectively, is a way to skirt the ownership rules.
Sinclair will park all the stations that it has signaled it is willing to spin off into a trust, though it may not wind up selling all of them, depending on whether the FCC does any more deregulating and on which specific stations the Justice Department or FCC might want in other hands.
The FCC is considering raising the 39% cap. Though that is unlikely to come in time to help Sinclair, it is something Business in the Public Interest chairman and CEO Adonis Hoffman, formerly a top FCC staffer, said should happen. “When any number of companies outside the broadcast sector can reach the entire country with the same programming, the national cap becomes a fiction that limits, and applies only to, broadcasters,” he said. But given the reality, “what remains to be seen is how well DOJ and FCC can harmonize their approach to meet the limit.”
Sinclair’s filing indicates that the deal will not be closing in the near-term, given that the DOJ is still vetting it and the FCC will now have to put the new deal out for public comment and consider that feedback before it decides.
That signoff, if it comes as expected, won’t be until April at the earliest, Equity Research advised its clients.