FCC issues ‘de facto merger death sentence’ to Sinclair-Tribune deal - Kogonuso

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Jul 19, 2018

FCC issues ‘de facto merger death sentence’ to Sinclair-Tribune deal

A broadcast merger that has been the poster boy for the FCC’s pro-industry agenda has been ordered to undertake a lengthy and potentially embarrassing process that amounts to, in the words of one commissioner, a “de facto merger death sentence.”

The proposed takeover of Tribune by Sinclair has been criticized by many as an unnecessary and potentially dangerous consolidation of media properties. The resulting company would have incredible reach and influence, especially combined with other recent rule changes that have further unshackled big media companies.

FCC Chairman Ajit Pai has himself been the target of many a sharp inquiry from the public, lawmakers and even the Office of the Inspector General. The general feeling seems to be: We understand that you have a deregulatory to-do list here, and that’s valid, but practically everything you do benefits Sinclair directly or indirectly. Justify yourself.

Whether it was because of this unremitting scrutiny or simply because Sinclair’s merger proposal was blatantly disingenuous, Pai decided to do an about-face and put the brakes on the deal. He announced his intentions earlier this week and today brings the actual “hearing designation order,” which would require Sinclair to appear before a judge in an adversarial courtroom setting and explain its misdeeds.

What misdeeds, you ask? Well, the main one cited in the HDO is this: Sinclair was required to divest itself from certain media holdings, but instead of doing so, it set up one (WGN-TV) to be sold massively below market price to a corporate confederate, who would then effectively cede control back to Sinclair.

Here’s how the order puts it:

The record raises significant questions as to whether those proposed divestitures were in fact ‘sham’ transactions.

…One application proposed to transfer WGN-TV in Chicago to an individual (Steven Fader) with no prior experience in broadcasting who currently serves as CEO of a company in which Sinclair’s executive chairman has a controlling interest. Moreover, Sinclair would have owned most of WGN-TV’s assets, and pursuant to a number of agreements, would have been responsible for many aspects of the station’s operation.

…There is a substantial and material question of fact as to whether Sinclair affirmatively misrepresented or omitted material facts with the intent to consummate this transaction without fully complying with our broadcast ownership rules.

There are pages and pages of allegations and hints regarding the cozy relationship between Fader and Sinclair, as well as a few other entities that would be part of this obvious sweetheart deal. The order says, essentially, that Sinclair will be given the chance to explain all this — but it would be on the record, in court. Only after they offer sufficient justification could the merger go forward.

But does a company like Sinclair really want to appear publicly before a judge and attempt to convince them that this was all just an innocent mistake? That it was planning to sell a major media property to a good friend for 90 percent off while retaining editorial and operational control? Not only that, but it would take a non-trivial amount of time and money to prepare for this debacle.

Sinclair’s board and stakeholders may understandably choose rather to abandon the merger than subject the company to that kind of scrutiny — not to mention the financial disincentives of delays, extra costs and any other concessions that might need to be made to put the deal forward. It’s already been revised again and again, with less favorable terms for Sinclair — at some point it stops being a deal worth pursuing.

That’s why Commissioner O’Rielly, in a rather sour-sounding accompanying statement, calls the order a death sentence. Not only would the Administrative Law Judge process be potentially damaging to Sinclair’s reputation, but it would be a mess of red tape. He managed to slip in some revisions, however, which “some may refer to as an initiation of a hint of due process.” Corporations do have rights, too.

Although for now the Sinclair-Tribune merger is only temporarily halted, the end result is as likely as not that it will be withdrawn. That’s entirely up to the company, of course, but it may be that the FCC has in this case succeeded in effectively regulating its industry. That would be cause for celebration.

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