The FCC, as promised, released its Hearing Designation Order (HDO) regarding the transfer of control of Tribune Media to Sinclair Broadcast Group via a $3.9 billion merger that involves several reworkings, divestitures, and spins to entities that have been called into question for their relationship to Sinclair’s key shareholders.
The 22-page order details how, among the applications filed with the Commission, three stick out like sore thumbs. These deals raise “significant questions as to whether those proposed divestitures were in fact ‘sham’ transactions,” the FCC writes.
The Commission pointed to Sinclair’s original plan to sell WGN-9 in Chicago to David Fader — called “an individual with no prior experience in broadcasting who currently serves as CEO of a company in which Sinclair’s executive chairman has a controlling interest.”
That would be Atlantic Automotive Group.
As has been extensively reported by RBR+TVBR, Fader has a close relationship with David D. Smith, who served as President/CEO of Sinclair until stepping aside from day-to-day duties in January 2017. Fader in 1997 was President/CEO of Summa Holdings Ltd., and in January of that year decided to have his Heritage Automotive Group purchase a pair of Saturn dealerships in the Baltimore area, and the rights to a third in Annapolis. To help finance future expansion, leading to the creation of ACG, Smith came on as a partner at Summa.
As disclosed by the FCC, Smith is a member of Atlantic’s board of directors. Further, Atlantic is an advertiser and tenant of Sinclair.
Speaking of the now-scrapped deal, and what it would have done prior to a Wednesday morning (7/18) announcement from Sinclair that it would now own WGN-9 outright, the FCC said, “Sinclair would have owned most of WGN-TV’s assets, and pursuant to a number of agreements, would have been responsible for many aspects of the station’s operation.”
Also of concern to the FCC: The purchase price Fader would have paid for WGN-9, and an option allowing Sinclair to eventually acquire the station.
“Fader would have purchased WGN-TV at a price that appeared to be significantly below market value, and Sinclair would have had an option to buy back the station in the future,” the FCC said. Fader would have paid $60 million for WGN-9.
Specifically, the FCC added, “we question the legitimacy of the proposed sale of a 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. Indeed, one could argue that Sinclair’s proposal to
divest what has been described as one of the ‘crown jewels’ of Tribune makes no sense from a business perspective unless that divestiture permitted Sinclair to maintain effective control over the station.”
RBR+TVBR coverage of the transaction from March 21 was cited as a source.
How undervalued would that WGN-9 deal have been? The FCC points to the 2002 sale of WPWR-TV in Chicago to Fox Television Stations, for $425 million.
The FCC also, as expected, called into question spins of KDAF-TV in Dallas and KIAH-TV in Houston to Cunningham Broadcasting, a company that takes the maiden name of the wife of Sinclair’s founder.
The FCC fully described the organizational structure of Cunningham, and who is in control: the children of Sinclair’s controlling shareholders are beneficiaries of trusts controlling the non-voting shares of Cunningham, with the parents holding options to buy the voting shares in the future.
The Commission also called out the recent acquisition of the voting shares of Cunningham by Michael Anderson, a Sinclair associate, “for a $400,000 sales price that is far below market value.”
Then there is Sinclair’s apparent guarantee of $53.6 million of Cunningham’s debt.
“Such facts raise questions about whether Sinclair was the real party in interest under Commission rules and precedents and attempted to skirt the Commission’s broadcast
ownership rules,” the FCC noted in HDO.
It also addressed the fact that, on Wednesday, Sinclair amended its transaction yet again by not selling WGN-9 to Fader and putting the Dallas and Houston stations in a trust administered by RAFAMEDIA LLC, headed by Richard A. Foreman.
“Although these three applications were withdrawn … material questions remain
because the real party-in-interest issue in this case includes a potential element of misrepresentation or lack of candor that may suggest granting other, related applications by the same party would not be in the public interest.”
That’s key to the FCC’s surprise argument against approving the Sinclair-Tribune merger.
“Given these issues and others described below, we are unable to find, based upon the
record before us, that grant of the applications would be consistent with the public interest,” the FCC says in the HDO. “Given the seriousness of the issues presented, we direct the Media Bureau to hold in abeyance all other pending applications and amendments thereto related to the overall proposed Sinclair-Tribune transaction until the issues that are the subject of this Hearing Designation Order have been resolved with
The word finality could have the effect of a final blow to a wounded warrior that saw a surprise jab just days away from an expected deal approval by the Department of Justice.
Representing Sinclair is Miles Mason, Esq., of Pillsbury Winthrop Shaw Pittman LLP.
Serving as Tribune’s legal counsel is Mace Rosenstein, of Covington & Burling LLP.