Sinclair Files Counterclaim Against Tribune on Acquisition Deal Gone Sour
Tribune helped plan divestitures it now calls "shams" and violated the terms of its agreement with Sinclair by backing away from the deal in the face of the FCC hearing designation order, the spurned buyer said Wednesday in a response filing and counterclaim to the takeover target's breach of contract lawsuit in Delaware Chancery Court (see 1808150056). FCC objections to the deal “came out of nowhere” and were “abrupt and surprising,” Sinclair said: “At no point during these discussions did the FCC ask for any changes or more information” regarding the divestitures it later called out as deceptive or regarding “the consideration the Parties would receive in the transaction.”
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
Sinclair wants unspecified “money damages” and costs for Tribune’s breach. Tribune seeks $1 billion, which the counterclaim called “a deliberate effort to exploit and capitalize on an unfavorable and unexpected reaction from the FCC to capture a windfall for Tribune.” It's an attempt by Sinclair “to distract from its own significant legal exposure resulting from its persistent violations of Tribune’s contractual rights,“ Tribune announced. “Tribune looks forward to holding Sinclair accountable in court.” Sinclair was “extremely disappointed that the Tribune transaction was terminated,” said CEO Chris Ripley in a release. The FCC didn’t comment.
Tribune was involved in submitting Sinclair’s divestiture plans to the FCC and DOJ, and worked on and approved those submissions, said the Sinclair filings. It repeatedly cited instances of attorneys for Tribune approving or making suggestions on the filings on the divestitures targeted by the HDO. The companies were “full partners” in the process “notwithstanding Tribune’s self-serving and after-the-fact attempts to distance itself from Sinclair and its own efforts to obtain approval,” Sinclair said.
Language in the agreement that required Sinclair to divest stations if needed to get regulatory approval was limited to specific markets, and wasn’t violated by Sinclair negotiations with DOJ, it said. Instead, Tribune violated the agreement by declining to work with Sinclair after the FCC issued the HDO, the counterclaim said. Tribune “went through the perfunctory motions of joining calls and announcing its ostensible willingness to find a solution. But Tribune distanced itself from Sinclair’s efforts to resolve the HDO,” Sinclair said. “Tribune’s number one priority was manufacturing and preparing for a meritless litigation claim.”
The counterclaim describes Sinclair as blindsided by news that an HDO was being contemplated: “Throughout this process, Sinclair and Tribune reasonably believed that the Transaction was on track for FCC approval.” The companies resolved negotiations with DOJ and expected to file an agreement in principle on the terms July 16 -- the day the FCC issued the HDO, the filings said. The FCC never requested more information on the specifics of the divestitures and didn’t respond to filings from deal opponents urging the agency to seek more information on Sinclair’s sharing agreements, it said.
Nothing about the ownership structure of Sinclair sidecar Cunningham Broadcasting was new to the FCC, Sinclair said. Broadcast attorneys agreed in interviews that FCC staff was familiar with Sinclair’s arrangements with Cunningham and previously approved similar deals. One difference in Sinclair/Tribune from other transactions is scale, said University of Minnesota School of Journalism assistant professor-media law Christopher Terry. Only Clear Channel’s consolidation of radio stations is comparable to what Sinclair/Tribune would have been, and the TV combination would have been much larger, he said.
The HDO was issued under unusual circumstances, Sinclair said, citing a statement by Commissioner Mike O’Rielly noting the “exceptionally expedited fashion” in which the item was voted. “Sinclair does not know why the FCC issued the HDO,” said the counterclaim.