Tribune Media terminates sale to Sinclair Broadcast Group, seeks $1 billion in damages

Sinclair Broadcast Group’s proposed $3.9-billion deal to acquire Tribune Media is dead.

Tribune announced Thursday that it is terminating the merger agreement first announced in May 2017. The companies had the option to kill the sale if it had not closed by Aug. 8.

Tribune also said it filed a breach-of-contract lawsuit against Sinclair in Delaware Chancery Court, alleging it failed to make its best effort at getting regulatory approval of the sale. Tribune is seeking $1 billion in damages.

“In light of the FCC’s unanimous decision … our merger cannot be completed within an acceptable timeframe, if ever,” Tribune Media Chief Executive Peter Kern said 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.”

The merger has been on hold since the Federal Communications Commission voted July 19 to have the proposal reviewed by an administrative court, a process that has a history of killing such deals.

Sinclair’s plan to buy Tribune’s 42 TV stations — including Los Angeles outlet KTLA-TV Channel 5 — had been expected to benefit from President Trump’s appointment of FCC Chairman Ajit Pai, who is considered a strong proponent of deregulation of the broadcast industry.

But Pai raised concerns about how Sinclair planned to divest some Tribune stations in order to meet the national cap on TV-station ownership. Under Sinclair’s plan, Tribune stations in Chicago, Dallas and Houston would have been sold to entities that had business ties to Sinclair for prices well under market value. Sinclair also would have retained control of the stations even after the divestiture.

The commission said Sinclair may have misrepresented its plans during the approval process.

Sinclair executives have maintained that they were transparent in their divestiture proposals.

Tribune’s lawsuit said Sinclair was repeatedly warned that it needed to comply with the Justice Department request to sell the stations in 10 markets.

“Sinclair repeatedly favored its own financial interests over its contractual obligations by rejecting clear paths to regulatory approval,” Tribune alleges in its suit. “Instead, Sinclair fought, threatened, insulted and misled regulators in a misguided and ultimately unsuccessful attempt to retain control over stations that it was obligated to sell.”

Sinclair may have been overconfident about the FCC approving the deal because of the company’s favorable news coverage of Trump. The company forces its local TV stations to air segments and commentaries supporting the Trump administration’s policies, and former Trump campaign advisor Boris Epshteyn is chief political analyst for Sinclair.

Some believed Sinclair would use the clout of its expanded national reach to launch a conservative-leaning news service to compete with Fox News Channel.

Sinclair stated publicly that it wanted Tribune’s outlets in order to take advantage of emerging over-the-air broadcast technology. The coming improvements will allow stations to offer higher-quality signals to viewers watching on TV and send programming and other data directly to mobile devices, enabling them to deliver targeted advertising messages. While Sinclair is already the largest holder of TV stations, Tribune’s outlets would have given it coverage in Los Angeles and New York.

Tribune shareholders had been counting on getting $43.50 in a combination of cash and stock from Sinclair. Tribune stock closed at $33.60 a share on Thursday, up around 1%.

Sinclair has yet to comment on Tribune’s decision.

When Tribune put its stations on the block last year, 21st Century Fox was among the companies to express interest. Now that Fox has agreed to sell its TV and movie production studio to Disney and focus on its broadcast business, it could make a bid for the stations.

Left-leaning opponents of the merger said a larger Sinclair would have further spread pro-Trump views into local newscasts.

“The end of this proposed expansion is a huge victory for those who want local news to stay truly local, and especially those communities who were set to see Sinclair take over their airwaves,” Media Matters fellow Pam Vogel said in a statement. “But Sinclair is still a major threat to the future of local news.”

But there were critics on the political right as well. Chris Ruddy, who heads the conservative TV and web service Newsmax, petitioned against the merger on the grounds that concentrated ownership “posed serious risks for diverse and balanced news in America’s heartland.”

The American Cable Assn., which represents small and medium-sized cable providers, said a larger Sinclair would have had too much clout in carriage-fee negotiations for its TV stations, eventually driving up prices for consumers.

“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,” Matthew M. Polka, president and chief executive of the American Cable Assn., said in a statement.

stephen.battaglio@latimes.com

Twitter: @SteveBattaglio

UPDATES:

3:35 p.m.: This article was updated with details on Tribune’s lawsuit against Sinclair.

9:45 a.m.: This article was updated with details on Tribune’s lawsuit and reaction to its decision to terminate its merger deal with Sinclair.

This article was originally published at 5:10 a.m.