Tribune Media Co. on Thursday said it has terminated its $3.9 billion agreement to be acquired by Sinclair Broadcast Group and filed a breach of contract lawsuit against Sinclair.
The suit seeks compensation for losses incurred as a result of Sinclair’s breaches of the merger agreement.
Sinclair said it was disappointed the merger didn't work out and called the suit meritless.
Sinclair agreed to buy Tribune and its TV stations but failed to obtain approval from the Justice Department and the FCC.
Tribune said Sinclair’s negotiations with regulators were unnecessarily aggressive and that it refused to sell stations in markets to unrelated third parties to receive approval.
Sinclair proposed selling 23 TV stations to meet regulatory objections, but many of those sales would have left the stations being operated by Sinclair.
Sinclair had said Wednesday that it was continuing to work with Tribune to find a way to complete the deal.
“Ultimately, the FCC concluded unanimously that Sinclair may have misrepresented or omitted material facts in its applications in order to circumvent the FCC's ownership rules and, accordingly, put the merger on indefinite hold while an administrative law judge determines whether Sinclair misled the FCC or acted with a lack of candor,” Tribune said. “As elaborated in the complaint we filed earlier today, Sinclair's entire course of conduct has been in blatant violation of the Merger Agreement and, but for Sinclair's actions, the transaction could have closed long ago.”
"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," said Tribune CEO Peter Kern. "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."
Sinclair’s agreement with Tribune allowed the parties to walk away from the deal if it wasn’t completed by August 8. Tribune said its losses due to what it claimed were Sinclair’s breaches of the agreement were more than $1 billion.
Sinclair, meanwhile, said it was withdrawing its applications from the FCC and filed paperwork to do so at the agency late in the afternoon.
“We are extremely disappointed that after 15 months of trying to close the Tribune transaction, we are instead announcing its termination,” said Chris Ripley, CEO at Sinclair.
“We unequivocally stand by our position that we did not mislead the FCC with respect to the transaction or act in any way other than with complete candor and transparency. As Tribune, however commented, in their belief, the FCC’s recent designation of the deal for a hearing in front of an Administrative Law Judge would have resulted in a potentially long and burdensome process and, therefore, pursuing the transaction was not in the best interest of their company and shareholders," Ripley said. "As for Tribune’s lawsuit, we fully complied with our obligations under the merger agreement and tirelessly worked to close this transaction. The lawsuit described in Tribune’s public filings today is entirely without merit, and we intend to defend against it vigorously.”
President Trump complained about the FCC’s decision to extend the review of the deal because the merger would have created another major conservative media voice.
Tribune also released quarterly financial information. It said that adjusted EBITDA increased 69% to $160.8 million.
Revenues rose 4% to $489.4 million, despite a 6% decline in core advertising revenues. Including political and digital revenue advertising was flat.
“In the second half of the year, we will see increases in network affiliate fees due to the recent renewal of our Fox affiliation at eight of our TV stations,” Kern said. “However, we expect improved core advertising pacing and a strong station footprint for the midterm election cycle to significantly counter this headwind. Given the operating strength of our media businesses along with the continued large distributions from TV Food Network, and with nearly $830 million in cash on the balance sheet, Tribune Media is stronger than it has been in many years and is well positioned to maximize value for our shareholders."
Here is a note Kern sent to Tribune staff Thursday
Earlier this morning we announced the termination of our proposed merger with Sinclair and that we have filed a lawsuit against Sinclair for breach of contract—attached is the press release we issued a short time ago.
Given the developments of the last few weeks, and the decision by the Federal Communications Commission to refer certain issues to an administrative law judge in light of Sinclair’s conduct, it’s highly unlikely that this transaction could ever receive FCC approval and be completed, and certainly not within an acceptable timeframe. This delay and uncertainty would be detrimental to our company, to our business partners, to our employees and to our shareholders. Accordingly, our Board made the decision to terminate the merger agreement with Sinclair to enable us to refocus on our many opportunities to drive the company forward and enhance shareholder value.
As for the lawsuit, we are confident that Sinclair did not live up to its obligations under the merger agreement and we intend to hold them accountable. A suit like this does not get resolved overnight and it is the last thing you should be thinking about, but I want you to know that Tribune did everything it was supposed to do, and we will make sure we are treated fairly.
Right now, I am sure many of you are still absorbing the news and wondering what it means for our company, for our future, and most especially for each of you. I want to take a moment to answer these questions and address some of your concerns as we now re-adjust to the old normal of running our great and storied Tribune Media Company.
So, let’s begin there—Tribune Media remains as strong as ever, with great TV stations, important local news and sports programming, a re-energized and financially powerful cable network, and a terrific history of serving our viewers, our advertisers, and our MVPD and network partners. You need look no further than the exceptional financial results we released today for proof of that. Our consistent success is directly related to your talent, your experience, your innovation, and your willingness to give your best every day.
As for the future, we continue to live in complex times in the media world. New consumer habits, new entrants to the space, new competitors every day, and consolidation going on all around us. Rapid change has become the norm—it’s impossible to predict the next big thing. What I do know, though, is that we’ve got valuable assets, great people running them, and we remain one of the preeminent broadcasting companies in America.
No doubt the rumor mill will begin anew with speculation about who might buy us or who we might buy or whether the regulatory landscape still favors consolidation. We can’t do anything about such speculation. What we can do is rededicate ourselves to our own performance. Let’s shake off the cobwebs of deal distraction, ignore the outside noise, and continue delivering on our commitment to each other, to our customers, to our partners and to the communities we serve. If we do that, the rest will take care of itself.
Let’s get together for a companywide town hall meeting tomorrow at Noon ET. We’ll broadcast the meeting live to our business units, talk more about all these issues and take your questions—you can submit questions in advance of the meeting to: email@example.com. In the meantime, if you have any concerns, our HR team is ready to help; and Gary Weitman can handle any media inquiries you might get.
Thank you, again,