Captain Chesapeake isn’t coming to Chicago after all. Blame overpaying a hand in a regulatory poker game leading to his ship sinking faster than the Exxon Valdez.
Approximately fifteen months after it was announced, Chicago-based Tribune Media announced Thursday morning it was walking away from its merger with Hunt Valley, Md.-based Sinclair Broadcasting. And in a surprise move, the company is now suing them for a breach of contract.
The deal would have created one of the biggest broadcasters in the country, with more than 200 stations covering more than 70 percent of the country including Chicago’s WGN-TV , WGN-AM, 41 other TV stations and WGN America. Sinclair is known for requiring its news stations to run content from conservative commentators Mark Hyman and Boris Epshteyn and segments such as “terrorism news desk”. Sinclair was founded in 1971 as a single Baltimore station (WBFF-TV), home to kids’ host Captain Chesapeake in the 1970s and 1980s, before it joined the Fox network.
The planned merger drew objections from a wide variety of organizations from the liberal Move On and Free Press to the conservative Parents Television Council and even conservative Fox News competitors NewsMax and One News Network. The merger was also opposed by several state attorney generals, including Illinois’ Lisa Madigan.
A few weeks ago, the FCC referred the Tribune Media-Sinclair merger to an administrative law judge as Chairman Ajit Pai had serious concerns about how a planned divestiture of WGN-TV to a Maryland auto dealer for a mere $60 million – far below what the station was worth – while continuing to control WGN via a shared services agreement, meaning Sinclair would run the station in lieu of owning it. Sinclair also planned to divest Tribune’s Dallas and Houston CW affiliates to Cunningham Broadcasting, another third-party operator under the same terms (an earlier draft of the deal to the FCC – among numerous – had New York’s WPIX divested to Cunningham for $15 million.)
In a statement, Tribune Media CEO Peter Kern noted “Our merger cannot be completed within an acceptable timeframe, if ever,” due to the law judge possibly delaying the deal longer – maybe more than a year. “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.”
In the merger agreement, Tribune or Sinclair could walk away from the deal as soon as August 8, 2018, with Tribune doing exactly that Wednesday evening. But what surprised some was the lawsuit Tribune filed against Sinclair Thursday morning in Delaware Chancery Court, seeking $1 billion in damages for how they handled themselves with regulators.
Tribune claims Sinclair “repeatedly and willfully breached its contractual obligations in spectacular fashion,” according to the suit, and ignored regulators’ “clear path” to a deal. “In an effort to maintain control over stations it was obligated to sell if advisable to obtain regulatory clearance, Sinclair engaged in belligerent and unnecessarily protracted negations with DOJ and the FCC over regulator requirements… all in the service of Sinclair’s self-interest and in derogation of its contractual obligations.”
Since the deal was announced, Sinclair has suffered numerous public relations gaffes – notably for making its news anchors across the country read the exact same script regarding “fake news” word-for-word and line-by-line, documented in a video posted by Deadspin. Sinclair also received unwanted attention when President Trump tweeted support for the Tribune deal – flawed as it was, criticizing the FCC for sending it to the administrative law judge.
With the Sinclair-Tribune deal officially dead, so were plans for Sinclair to sell several Tribune stations to Fox, and selling a bunch of others to Standard Media. The real question now is who will pursue Tribune Media? Will the stations be broken up and sold piecemeal? Even though the merger is dead, Tribune is likely to sell as the industry continues to consolidate. Fox could still nab some of the Tribune stations (especially those in NFL markets) and even a few more. The deal’s collapse could pose opportunity for other buyers, including Tegna, Gray, and Scripps.
As for Sinclair, they have nobody to blame but themselves, done in by their own arrogance. When they decided to acquire Tribune, Sinclair figured it would be an easy path given the FCC now had a 3-2 Republican majority and the GOP would be far more receptive to their needs. But when Sinclair decided to circumvent around the 39 percent ownership cap – while divesting WGN-TV for far less for what it’s worth – even Pai though something was wrong. Plus, it turned out Sinclair misrepresented themselves and unnecessarily badgered and bullied the Justice Department in the process. Their actions hurt Sinclair in the FCC’s eyes and had their reputation damaged in the industry – hell, even Clear Channel and Cumulus were never this stupid. In fact, David Smith and the Captain Chesapeake boys made the Dickey brothers look like Lee Iacocca.
We all know how bad Sinclair was when it came to running their stations, inserting right-wing commentary and all. They are total snake oil salesmen, something we knew all along. In the words of the late football coach Dennis Green, we knew who they thought they were. Only difference was the FCC didn’t let them off the hook.