One of the highest-profile deals in the current go-go period for media M&A has fallen apart, a stunning turn of events for a merger that once seemed all but inevitable.
Tribune, FOX4's parent company, is withdrawing from its $3.9 billion buyout by Sinclair and it's filing a lawsuit against it, citing breach of contract.
The $3.9 billion acquisition was announced in May after Sinclair won the rights to Tribune Media at auction, which would have given Sinclair ownership or control of television stations in 72 percent of USA markets, including majors like New York City, Chicago and Miami.
If no divestitures were made, "the combined company would reach 72 percent of U.S. television households and would own and operate the largest number of broadcast television stations of any station group", the FCCnotes.
Tribune said it will sue Sinclair for breach of contract, arguing Sinclair's negotiations with the US Justice Department and FCC were "unnecessarily aggressive". "Further delay and uncertainly would be detrimental to our company, our business partners and our shareholders, and accordingly, our board chose to terminate the merger agreement with Sinclair".
Tribune filed the lawsuit against Sinclair, the largest USA broadcast station owner, alleging material breach of contract over its failure to win over regulators 15 months after the merger was first announced.
At the same time it announced the lawsuit and the end of the road with Sinclair, Tribune also reported second-quarter earnings growth of 69% and revenue growth of 6%.
The lawsuit, filed in Delaware Chancery Court on Thursday morning, uses similarly tough language regarding Sinclair and seeks damages "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".
Sinclair also has become a significant outlet for conservative perspectives.
The FCC recently sent the deal to an administrative law judge for a closer look because of concerns that Sinclair misrepresented facts in its application in order to circumvent the FCC's ownership rules.
The FCC did not immediately comment on Thursday.
Ted Rouse, a Chicago-based partner with Bain & Company specializing in mergers and acquisitions, said it may be hard for Tribune Media to return to business as usual after 15 months in limbo.
"We think that it is likely that another suitor will emerge for Tribune in the near-term", Kenneth Duffel, an analyst with KDP Investment Advisors, said in a note.
The company is "open to all opportunities" in terms of industry consolidation or remaining independent, Tribune Media Chief Executive Officer Peter Kern told investors on a call on Thursday.
He said the merger's failure was not the result of "an unwelcoming regulatory environment" but how Sinclair moved forward.
A survey by the Washington Post in December 2016 showed that the coverage by Sinclair-run news outlets was "disproportionately" favorable to Trump in the election year. The company already owned 173 stations in 81 markets.
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