Tribune deal is mired in FCC rift over cross-ownership rules

The $8.2-billion deal to take Tribune Co. private has become entangled in a newly inflamed debate over media ownership rules at the Federal Communications Commission that could pose problems for the transaction.

Tribune needs FCC waivers to complete the deal because it owns newspapers and TV stations in Los Angeles and four other markets in violation of rules that prevent such cross-ownership. Tribune owns the Los Angeles Times and KTLA-TV Channel 5 as well as other newspapers, TV stations and the Chicago Cubs baseball team.

Now, trying to capitalize on Tribune’s push to complete the deal by year’s end and its support from some key lawmakers, FCC Chairman Kevin J. Martin has indicated that he won’t grant any waivers pending a vote on major revisions to the commission’s media ownership rules, agency officials said.

“He’s tying the fate of the Tribune deal that he wants to a large proceeding on media ownership,” said FCC Commissioner Michael J. Copps, a Democrat who opposes loosening the rule. “To say we have to change the media ownership rules so we can get the Tribune deal done does not strike me as . . . a good way to make public policy.”

Martin has proposed an ambitious timetable for the FCC to vote on a package of media ownership rule changes by Dec. 18. Among the changes he is expected to propose is the elimination of the ban on owning a newspaper and a TV station in the same market. But some FCC commissioners, lawmakers and public interest advocates criticize the vote as coming too soon.

A Dec. 18 vote could come too late for Tribune, which has long pushed for lifting the cross-ownership ban. The company needs 20 days to complete the transaction after FCC approval.

To go private by the end of the year in a deal led by real estate mogul Sam Zell, the company needs the FCC by mid-November either to grant temporary waivers or to lift the cross-ownership ban, said Shaun Sheehan, Tribune’s Washington vice president. Failure to do so would mean significant financial penalties. The new private company would not be eligible for tax-exempt status for 2008 and the $34-a-share offer would go up, based on an 8% annualized “ticking fee,” until the deal closed.

“I have enormous concern,” Sheehan said. The deal probably would die if it was not approved by May 31, when financing commitments expire.

Martin, a Republican, hasn’t publicly ruled out granting Tribune waivers, which have been pending since May 2. But privately he’s saying the only way to get the Tribune request approved is by eliminating the cross-ownership rule.

Copps is unlikely to approve the waivers, but it’s unclear how the FCC’s other Democrat, Jonathan S. Adelstein, may vote. Both oppose greater media concentration. But the commission’s Republican majority is expected to approve Tribune’s request. Adelstein and Copps said Thursday that they were prepared to vote on the waivers.

“It’s entirely inappropriate to exploit the urgency of a business transaction to leverage another agenda,” Adelstein said. “It’s just not fair to hold it hostage.”

Martin declined to comment. But his spokeswoman, Tamara Lipper, said the Tribune deal was not a factor in his proposed date for the media ownership vote, which she said Martin would consider changing.

“This has nothing to do with any particular transaction,” Lipper said. “This has only to do with the fact that he thought this was the appropriate time given where we are in the process to begin a dialogue with his colleagues about how we could bring this to a close.”

Although Martin probably has enough support from fellow Republicans on the commission to pass whatever media ownership changes he proposes, he prefers a consensus on almost every vote. His move to link Tribune to the broader media ownership issue could help draw Adelstein’s vote, as well as limit backlash from key congressional Democrats such as Sen. Richard J. Durbin (D-Ill.), who wrote to Martin in June to urge prompt action on the waivers.

But Martin’s move could backfire. Durbin will oppose any broader loosening of media ownership rules, said his spokesman, Jose Shoemaker.

The FCC has been considering media ownership changes since June 2006 and has held five public hearings on the issue. But loosening the rules would be controversial. When the FCC overhauled the rules in 2003, including lifting the cross-ownership ban, it sparked a public outcry.

Congress scaled back the major change -- the percentage of the country that a single broadcasting company could reach. Federal judges halted the rest, sending them back to the FCC for reconsideration and criticizing the agency for not properly justifying the changes.

The slow pace of hearings seemed certain to push the process well into next year, and word this week of Martin’s proposed Dec. 18 vote triggered immediate concern in Congress.

Sen. Byron L. Dorgan (D-N.D.) predicted Wednesday that “there’s going to be a firestorm of protest, and I’m going to be carrying the wood.”

Dorgan got Senate Commerce Committee Chairman Daniel K. Inouye (D-Hawaii) to agree to hold a hearing. On Thursday, Dorgan and Sen. Trent Lott (R-Miss.) wrote to Martin, asking him to first complete an FCC review of ways to ensure that broadcasters serve their local communities.

“The FCC should not rush forward and repeat mistakes of the past,” they told Martin.

Copps and Adelstein also said Martin should take steps to improve broadcast ownership by minorities and women before moving ahead on the consolidation rules.

Gene Kimmelman of Consumers Union, the publisher of Consumer Reports, said that Dec. 18 was too soon to vote and that Tribune was caught in the middle of a larger battle.

“It would be totally understandable if they’re a bit nervous how they’re almost being used as a ploy to address bigger political fights,” he said.

jim.puzzanghera@latimes.com