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By Liz Crampton
Antitrust lawyers expect Sinclair Broadcast Group Inc. and Tribune Media Co.'s proposed merger to undergo a straightforward Justice Department antitrust review, they told Bloomberg BNA.
Most of the attention about the proposed merger has focused on the Federal Communications Commission changing rules to ease its own approval of the $3.9 billion deal, but the DOJ also must review the deal for possible market dominance. The DOJ’s focus is relatively narrow, staying away from the more difficult questions about programming or content.
The review is taking place among heightened tension between news outlets and the Trump administration. President Donald Trump has sparred with the CNN news network, and the White House has contemplated halting the proposed merger of AT&T Inc. and CNN’s parent company Time Warner Inc., as punishment for what it considers unfair coverage, according to the New York Times. Sinclair, which is seen as conservative, recently hired former Trump White House aide Boris Epshteyn as a chief political analyst and plans to require its stations to air his segments nine times each week.
The Justice Department’s broadcast merger reviews take a more limited view. The agency examines markets, defined by Nielsen ratings, where the merging media companies own overlapping TV stations. DOJ officials generally are concerned with how much market power a broadcasting company could wield in a local area and whether that dominance would lead to higher advertising rates. If the new company has too much control over a certain market, the government may require divestitures.
“The traditional analysis that DOJ undertakes in a merger of local television stations is really focused on fairly small, discrete geographic markets and the extent to which there is competition for advertising dollars between the merging parties,” Logan Breed, an antitrust partner at Hogan Lovells, told Bloomberg BNA.
The Sinclair-Tribune merger “should be a deal that is doable with some targetable divestitures,” he added. “That’s most likely the approach that the parties are taking with DOJ.”
Sinclair and Tribune have already provided a road map for Justice Department lawyers reviewing their proposed merger by identifying areas where the two companies most directly compete. Sinclair has said it may sell some stations to comply with demands of antitrust regulators. Regulators might order that Sinclair sell stations in St. Louis, Salt Lake City, and Wilkes-Barre, Pa., Chief Executive Officer Christopher Ripley told investors in May.
Sinclair and Tribune on June 29 pulled their paperwork required by law to notify antitrust regulators of merger transactions. They then refiled the papers July 3, kicking off another 30-day period for the companies to wait for an antitrust verdict.
That means that by early August, the companies will know if they received clearance and can proceed with their merger or will undergo a more rigorous review that could last months.
A “pull-and-refile” of antitrust paperwork happens occasionally with mergers that may require slightly more review but not a full-blown “second request” for information. A second request is an optional formal step in the review process that, when sought by regulators, requires companies to divulge significant amounts of data and documents about their businesses.
Tribune and Sinclair could have anticipated such a second request from the Justice Department, Breed said. If company lawyers were made aware of a few competitive issues that could be resolved within another 30-day waiting period and avoid the costly second request, it would make sense to refile the paperwork.
Sinclair and Tribune say they expect to close their deal by the fourth quarter.
Sinclair is the second largest broadcaster in the U.S., and the Tribune purchase would strengthen its reach into the major markets of New York, Chicago, and Los Angeles. Sinclair has 173 stations in 81 markets, including affiliations with Fox, ABC, CBS, and NBC, according to the companies’ financial disclosures. Tribune has 42 stations.
Combined, the companies would cover 42 percent of the country, with overlapping stations in 14 markets.
The Sinclair-Tribune deal would have been halted if the FCC hadn’t changed a rule earlier this year that now allows TV station groups to count just half of their coverage areas for “ultra high frequency stations” to comply with a 39-percent nationwide cap.
FCC Chairman Ajit Pai eased that rule since taking over the agency in January. Under the old version, the merger would have been prohibited, Bloomberg Intelligence Litigation Analyst Matthew Schettenhelm wrote June 30. He added that the FCC action will spur “M&A and market-share gains” among other large U.S. media companies.
Industry observers speculate that the conservative-leaning Sinclair aims to position itself as a strong competitor to Fox News, and the Tribune acquisition will greatly aid that goal.
But content broadcast by the merged entity won’t be part of the Justice Department’s antitrust analysis, which uses Section 7 of the Clayton Antitrust Act to guide its review of mergers. That law doesn’t account for considering content, only the impact on the market.
The FCC, on the other hand, historically has been concerned with how media ownership affects diversity in content, including the availability of news and information on a local level.
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