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Sinclair Broadcast Group Inc.'s proposed $3.9 billion purchase of Tribune Media Co. is in trouble at the Federal Communications Commission, but that isn’t the only potential problem for the merger.
The FCC is on the verge of sending the merger to an administrative hearing that industry observers say could kill the deal. But there are two other ways that could happen.
First, review of the deal is also ongoing at the Justice Department’s antitrust division under a different set of legal criteria than the FCC used. That review could still result in either a different set of required divestitures than the one sought by the FCC or a suit to stop the merger.
Second, a case pending before the U.S. Court of Appeals for the D.C. Circuit could upend the deal just as easily. The suit, Free Press v. FCC, challenges the FCC’s decision to reinstate an old exception to the nationwide 39 percent ownership cap on broadcast stations. If the exception is struck down, Sinclair’s merger with Tribune becomes almost impossible to fit under that cap.
A referral to an administrative law judge, as the FCC did, is often enough to kill a deal by itself. “Parties rarely even try to make their case,” Matt Wood, policy director for Free Press, told Bloomberg Law.
If the FCC and the DOJ aren’t taking Sinclair’s proposed divestitures to what Wood called “shell companies” seriously, it could pose fatal problems for the merger. “That would be the $4 billion question,” Wood said. “Would the deal be worth it to them if they have to restructure it completely at the 11th hour?”
Sinclair’s merger with Tribune faces simultaneous review at both the FCC and the DOJ. The two agencies coordinate their review closely, but they use different standards. The FCC asks whether a merger serves the public interest. The DOJ’s review focuses on whether the deal harms competition in a defined market.
The FCC’s referral of the deal to an administrative judge means the tie-up faces “months, if not years” of review before it could be approved or rejected by the full commission, Phillip Berenbroick, senior policy counsel for the media watchdog Public Knowledge, told Bloomberg Law.
The DOJ’s investigation of the deal is “ongoing,” a DOJ spokesman confirmed to Bloomberg Law. That review faces a number of hurdles that relate to issues identified at the FCC — that the stations to which Sinclair proposes to sell its assets are potentially still under Sinclair’s control.
Makan Delrahim, chief of the DOJ’s Antitrust Division, has repeatedly said he will accept only “structural” remedies, like divestitures, to fix identified competition problems with a deal. But critics have long complained that Sinclair’s divestitures around mergers are more of a “shell game” than genuine arm’s-length transactions.
“We’ve been saying for a long time that these less-than-arm’s-length deals with entities that are tightly knit into the Sinclair fabric are problematic on their face,” Berenbroick said. But these side deals among several competitors could be problematic evidence that relations among these nominal rivals are cozy.
The FCC’s concern is diversity of views in news and the public interest in local reporting, but the DOJ would be keen to avoid Sinclair control over stations that would give it outsized power in a local market. It would demand sale of those stations to an experienced, independent buyer.
The present proposed buyers don’t fit that description, Berenbroick said. “Those aren’t really operations appropriately set up to take on these stations and conduct local news gathering to inform the public,” he said.
Finally, a decision could come any time from the appeals court hearing Free Press’s lawsuit challenging the FCC’s rules around the nationwide media ownership cap. Oral argument before Circuit Judges Gregory Katsas, Patricia Millett, and Cornelia Pillard was held April 20.
The FCC’s decision to reinstate a “discount” for channels broadcasting above a certain frequency was arbitrary and capricious, Free Press argued. Sinclair announced its Tribune bid shortly after the FCC’s action, prompting critics to say the discount was tailor-made for the Sinclair-Tribune deal. Free Press and and other advocates want that order vacated and the discount killed. Without that discount, Sinclair would be well over the ownership cap after swallowing Tribune’s assets. Without the discount, Sinclair-Tribune would reach 59 percent of U.S. households, Bloomberg News reported.
If the court agrees with them, the FCC could appeal to the Supreme Court, but that would take so much time it’s not clear the Sinclair-Tribune deal could survive. Sinclair and Tribune both intervened in the suit on the side of the FCC.
The case is Free Press v. FCC , D.C. Cir., 17-1129, 7/16/18 .
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