Tribune Media on Thursday officially scrapped its proposed $3.9 billion merger with Sinclair Broadcast Group and filed a lawsuit against Sinclair in the Delaware Chancery Court for breach of contract.
According to Bloomberg, the lawsuit is seeking $1 billion in damages for all losses incurred as a result of Sinclair’s “material breaches” of the deal agreement.
Tribune walked away from the deal after hitting a midnight deadline last night for termination of the agreement.
The move comes a few weeks after the FCC on July 18 voted to send the deal to a hearing for administrative law review to determine if Sinclair had misrepresented or omitted material facts related to certain proposed station divestitures.
Tribune said Sinclair engaged in “unnecessarily aggressive and protracted negotiations,” with the DOJ and FCC, refusing to sell stations in certain markets to gain regulatory approval.
“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 in a statement. “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.”
An administrative law review can be a lengthy process and is often seen as a deal killer.
“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 Peter Kern, Tribune Media’s CEO, in a statement. “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.”
Industry group the American Cable Association—one of the many long-time critics of the Sinclair-Tribune deal that would have seen Sinclair add 42 TV stations to its already large portfolio of 192 stations — praised Tribune’s decision.
“Tribune’s decision to pull the plug on the Sinclair merger is great news for consumers who will avoid paying the higher pay-TV rates the deal would have caused,” ACA President and CEO Matthew Polka said in a statement. “It is especially great news for those consumers served by smaller video providers that have been victimized in the past by outrageous retransmission consent fee hikes and scurrilous signal blackouts by large corporate broadcasters.”
“Few predicted the collapse of the Sinclair-Tribune deal when it was first announced. ACA is pleased that others joined us in refusing to yield to conventional wisdom and continuing to challenge an obvious attempt by Sinclair to subordinate the public interest to its quest to obtain TV station ownership hegemony,” Polka added.
Tribune made the announcement alongside its second-quarter earnings report.
Tribune’s revenues for the quarter increased 4 percent to $489.4 million, and adjusted EBITDA increased 69 percent to $160.8 million.
Retransmission revenues were up 12 percent to $117.2 million and carriage fee revenues increased 28 percent to $40.8 million. Programming expenses for the quarter decreased 29 percent to $111.6 million, attributed to a shift in strategy at WGN America.
“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.”