Tribune Kills Sinclair Merger, Files Suit

Tribune Media Co. on Thursday morning announced that it has terminated its $3.9 billion merger agreement with Sinclair Broadcast Group, and that it has filed a lawsuit in the Delaware Chancery Court against Sinclair for breach of contract.

Tribune said the lawsuit “seeks compensation for all losses incurred as a result of Sinclair’s material breaches of the merger agreement.”

In the merger agreement, Tribune said, “Sinclair committed to use its reasonable best efforts to obtain regulatory approval as promptly as possible, including agreeing in advance to divest stations in certain markets as necessary or advisable for regulatory approval. Instead, in an effort to maintain control over stations it was obligated to sell, Sinclair engaged in unnecessarily aggressive and protracted negotiations with the Department of Justice and the Federal Communications Commission over regulatory requirements, refused to sell stations in the markets as 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 derogation of Sinclair’s contractual obligations.

“Ultimately, the FCC concluded unanimously that Sinclair may have misrepresented or omitted material facts in its applications in order to circumvent the FCC’s ownership rules and, accordingly, put the merger on indefinite hold while an administrative law judge determines whether Sinclair misled the FCC or acted with a lack of candor. As elaborated in the complaint we filed earlier today, Sinclair’s entire course of conduct has been in blatant violation of the merger agreement and, but for Sinclair’s actions, the transaction could have closed long ago.”

Peter Kern, Tribune Media’s chief executive officer, said: “In light of the FCC’s unanimous decision, referring the issue of Sinclair’s conduct for a hearing before an administrative law judge, our merger cannot be completed within an acceptable timeframe, if ever.

“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.”

Second Quarter Results

At the same time as it made the announcement ending the Sinclair merger, Tribune also reported its second quarter financial results that included Television and Entertainment segment revenues of $486.4 million, up 4% from $466.1 million in 2Q 2017.

The segment revenue breaks down to:

• Television and Entertainment net advertising revenues were flat at $311.4 million.
• Net core advertising revenues (which exclude political and digital revenues) decreased 6% to $273.7 million.
• Retransmission revenues increased 12% to $117.2 million.
• Carriage fee revenues increased 28% to $40.8 million.

Segment operating profit was $119.8 million, up from $50.2 million for 2Q 2017.

Television and Entertainment adjusted EBITDA was $173.8 million, up 56%.

The segment’s 2Q broadcast cash flow was  $160.1 million, compared to $127.3 million in the second quarter of 2017, an increase of $32.7 million, or 26%.

For the company as a whole, consolidated operating revenues for the second quarter of 2018 were $489.4 million compared to $469.5 million in the second quarter of 2017, representing an increase of $19.8 million, or 4%. The increase was primarily driven by higher retransmission revenues, carriage fee revenues and political advertising revenues, partially offset by lower net core advertising revenues and the absence of barter revenues, which are no longer recognized under the new revenue guidance the Company adopted in the first quarter of 2018. Excluding second quarter 2017 barter revenues, consolidated operating revenues increased by 6%.

Consolidated income from continuing operations was $84.4 million in the second quarter of 2018 compared to a consolidated loss from continuing operations of $29.8 million in the second quarter of 2017.

Kern commented: “Notwithstanding our disappointment regarding the outcome of the transaction, we are extremely pleased with our second quarter results, which were very strong. Consolidated Adjusted EBITDA grew 69% versus the prior year period and 84% for the first half of the year.

“While net core advertising revenues declined 6% and were under pressure broadly, we were able to drive consolidated revenue growth of 6% when excluding the impact of barter revenues, with solid growth in retransmission and carriage fees revenues and political advertising revenue.

“In addition, our disciplined focus on cost management drove programming expenses down 29% and corporate and other cash expenses, excluding transaction costs, down 19% over the prior year period.”

Read the company’s report here.