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Tribune Media Lawsuit: Belligerent Sinclair Blew A Sure Thing

Highlights from the court filing the Los Angeles Times calls hilarious.

"[F]rom virtually the moment the Merger Agreement was signed, Sinclair repeatedly and willfully breached its contractual obligations in spectacular fashion.

"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 negotiations with DOJ and the FCC over regulatory requirements, refused to sell stations in the ten specified markets required to obtain approval, and proposed aggressive divestment structures and related-party sales that were either rejected outright or posed a high risk of rejection and delay - all in the service of Sinclair's self-interest and in derogation of its contractual obligations."

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"Sinclair repeatedly favored its own financial interests over its contractual obligations by rejecting clear paths to regulatory approval.

"Instead, Sinclair fought, threatened, insulted, and misled regulators in a misguided and ultimately unsuccessful attempt to retain control over stations that it was obligated to sell."

*

"Under Sinclair's highly unorthodox proposal - first raised with FCC staff more than six months after the Merger approval applications were originally filed at the FCC - Sinclair would transfer dozens of Tribune and Sinclair stations to a trust that would, prior to closing, dispose of stations selected for divestment and then transfer back to Sinclair the stations it ultimately would be authorized to own.

"By proposing this structure, Sinclair hoped to be able to market more than one station in each divestiture market and then, after receiving bids, choose which station to actually divest.

"While that optionality might have been beneficial to Sinclair, it had the inevitable effect of necessitating the attempted use of a Rube Goldberg type divestiture trust, without regard to the resulting delay in the already much-delayed regulatory review process."

*

"It decided to propose station sales to parties with significant ties to Sinclair's Executive Chairman, David Smith, and his family, coupled with joint sales and shared services agreements under which Sinclair would effectively control all aspects of station operations, including advertising sales and the negotiation of retransmission agreements with cable and satellite operators.

"Under these proposed arrangements, Sinclair would continue to reap the lion's share of the economic benefits of the stations it was purportedly 'divesting' and would have an option to repurchase the stations in the future.

"Sinclair proposed, among other things, selling WGN-TV in Chicago to Steven Fader, a close associate of Smith's in a car dealership business who had no experience in broadcasting.

"Sinclair also proposed the sale of WPIX, a New York station, to Cunningham Broadcasting Corporation ('Cunningham'), a company that owns numerous television stations that are operated by Sinclair employees under joint sales and shared services agreements, has tens of millions of dollars in debt guaranteed by Sinclair, and had been controlled by the estate of Smith's late mother until January 2018."

*

"Sinclair had not told the FCC, in its applications, that Smith owned the controlling interest in Fader's car dealership company."

*

"The FCC Order referred the 'sham' transactions" and Sinclair's misconduct to a full administrative hearing.

"That process can take years and was described by one of the FCC's Commissioners, in a statement released with the order, as 'regulatory purgatory' that is 'a de facto merger death sentence.'"

*

"Tribune now seeks, through this action, to recover all losses incurred as a result of Sinclair's misconduct, including but not limited to approximately $1 billion of lost premium to Tribune's stockholders and additional damages in an amount to be proven at trial."

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"Although staff members at DOJ and the FCC laid out a clear path for clearance of the Merger, Sinclair ignored their repeated statements of what was required for approval.

"Instead, Sinclair defiantly (and unsuccessfully) attempted to obtain clearance on better terms for itself, regardless of how long that took or whether it risked failing to obtain approval of the Merger.

"Throughout, Sinclair was warned by staff at DOJ and the FCC that its proposals were unacceptable, and by Tribune that its actions were violations of the Merger Agreement. Sinclair consistently ignored or rejected those warnings and antagonized DOJ and FCC staff, thereby creating unnecessary and entirely avoidable barriers to good, constructive interactions with the regulators reviewing the Merger."

*

"Sinclair submitted an application for the sale of a station in Chicago (WGN) to WGN-TV LLC, an entity established by an individual named Steven Fader, a car dealer with business ties to David Smith.

"Fader had no broadcast experience, which was precisely why Sinclair chose him to 'purchase' WGN: under Sinclair's retransmission consent agreements with various cable and satellite providers, Sinclair would lose tens of millions of dollars annually in WGN revenue if Sinclair ever owned WGN.

"The most self-serving way of preserving that revenue was to sell WGN to a newcomer who could step into the shoes of Tribune's very favorable distribution agreements while kicking back the preserved profits to Sinclair.

"Sinclair's proposed operating arrangements with Cunningham and Fader further suggested Sinclair employees would have responsibility for the 'divested' stations' operations, including advertising sales and retransmission consent negotiations; Sinclair would reap most of the economic benefits of the stations it was 'divesting,' including retransmission revenues; and Sinclair would have an option to repurchase the stations in the future.

"Sinclair's proposal was so provocative that the FCC staff refused even to put Sinclair's proposed sales of WPIX to Cunningham and WGN to Fader out for public comment.

"In the staff's view, Sinclair's entanglements with the buyers and the terms of the operating agreements meant that the station sales could readily be viewed as 'sham' transactions.

"The FCC's staff warned Sinclair to avoid related-party arrangements and instead propose clean station sales.

"At the same time, Tribune again reminded Sinclair of its obligations under the Merger Agreement and cautioned that Sinclair's aggressive divestiture proposals were inconsistent with those requirements."

*

"With respect to the sale of WGN in Chicago to Fader, the FCC noted that Fader had 'no prior experience in broadcasting' and that he 'currently serves as CEO of a company [Atlantic Automotive Group] in which Sinclair's executive chairman has a controlling interest' and 'serves as a member of its board of directors.'

"Under the proposed sale of WGN to Fader, Sinclair would sell advertising, provide programming and most of the personnel needed to operate the station, and capture nearly all of the station's revenue.

"Sinclair would also have owned most of the station's assets and had an option to acquire the station's remaining assets, including its FCC licenses."

*

"Fader not only lacked any prior broadcasting experience, but also has extensive business relationships with David Smith, currently a director and controlling shareholder of Sinclair.

"This called into question Fader's independence from Sinclair.

"Specifically, we question the legitimacy of the proposed sale of . . . such a highly rated and profitable station in the nation's third-largest market to an individual with no broadcast experience, with close business ties to Smith, and with plans to own only the license and minimal station assets . . .

"The $60 million sales price for WGN-TV appears to be far below market value.

"For instance, the 2002 sale of WPWR-TV, Chicago, IL, to Fox Television Stations, Inc., was executed at $425,000,000 - over seven times the sales price for WGN-TV . . .

"In light of the relationship between Sinclair and Fader, in addition to sale terms that are atypically favorable to the buyer, substantial and material questions of fact have been raised as to whether Sinclair was the real party-in-interest to the application to assign the license for WGN-TV to WGN TV LLC."

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See also:

* Tribune Executives Will Get Bonuses After Sinclair Deal Collapses.

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Previously:
* Item: Former Trump Aide Joins Sinclair.

* Trump's FCC Chair Continues To Shaft The Public, Offer Major Handouts To Big Media.

* Trump-Friendly Sinclair's Takeover Of Tribune TV Stations Brought To You By Trump's FCC Chairman.

* Jonathan Pie, TV Reporter! Make The Air Fair.

* 'Maybe The Worst FCC I've Ever Seen.'

* A Pair Of Decades-Old Policies May Change The Way Rural America Gets Local News.

* Tribune's Disastrous Sale To Sinclair.

* Lawmakers Demand Answers About FCC's Favoritism Toward Sinclair.

* Can Anyone Stop Trump's FCC From Approving A Conservative Local News Empire?

* Sinclair's Flippant FCC Ruling.

* FCC Presses Sinclair For Answers On Tribune Merger.

* Trump FCC Eliminates Local Broadcast Main Studio Requirement In A Handout To Sinclair That Will Harm Local Communities.

* Trump's FCC Chairman Announces Plan To Scrap Media Ownership Limits Standing In Way Of Tribune-Sinclair Mega-Merger.

* Lisa Madigan et al. vs. Sinclair-Tribune.

* Local TV News Is About To Get Even Worse.

* Trump's Secret Weapon Against A Free Press.

* With Massive Handouts To Sinclair, FCC Clears Path To New Wave Of Media Consolidation.

* Trump FCC Opens Corporate Media Merger Floodgates.

* FCC Wraps New Gift For Sinclair.

* FCC Inspector General Investigating Sinclair Rulings.

* Behind Sinclair's 'Project Baltimore.'

* Don't Be Fooled By Sinclair's Shell Games.

* Free Press Sues The FCC For Dramatic Reversal Of Media Ownership Limits That Pave Way For Media Mergers.

* Thanks, Tribune Media, All You Did Was Weaken A Country.

* Sinclair-Fox Station Deal Enabled By FCC Is Dangerous For Democracy.

* The Sinclair Sham.

* Debunking The Broadcast Industry's Claims About Sinclair's Tribune Takeover.

* Surprise FCC Move Maims Sinclair-Tribune Merger.

* Sinclair Makes Last Ditch Effort To Salvage Tribune Merger. Will FCC Bite?

* Sinclair-Tribune Deal On Life Support.

* Sinclair-Tribune Deal Is Dead.

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See also:

* Sinclair Broadcast Group Solicits Its News Directors For Its Political Fundraising Efforts.

* FCC Plans To Fine Sinclair $13.3 million Over Undisclosed Commercials.

* Sinclair's New Media-Bashing Promos Rankle Local Anchors.

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Comments welcome.



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Posted on August 13, 2018


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