Sinclair Fires Back Against Tribune Suit
Soon after the FCC made clear last month it was not going to approve Sinclair’s merger with Tribune, Tribune hit Sinclair with a $1 billion-plus suit, alleging that Sinclair had effectively breached their agreement and killed the deal by dragging out the approval process at the Justice Department and grossly mishandling the process at the FCC.
Today, Sinclair struck back, countering that it was Tribune that breached the agreement by failing to make “reasonable best efforts” to obtain regulatory approval as it was obliged to do and, near the end, positioning “itself for litigation against Sinclair.”
The Tribune suit and countersuit were in filed the Delaware Court of Chancery.
The 182-page countersuit includes 141 responses to specific allegations made by Tribune and 11 “affirmative defenses.”
It asks the court to dismiss Tribune’s complaint, order Tribune to pay its legal and professional fees and grant “further relief as this court deems just and proper.”
“We were extremely disappointed that the Tribune transaction was terminated,” said Sinclair CEO Chris Ripley in a statement.
“We are likewise disappointed that Tribune, through its meritless lawsuit, is seeking to capitalize on an unfavorable and unexpected reaction from the [FCC] to capture a windfall for Tribune.
“As described in our filing, we fully complied with our obligations under the merger agreement and worked tirelessly to close the transaction. The company looks forward to vigorously defending against Tribune’s claims and pursuing our own claim.”
In a press release, Tribune fired back, calling the counterclaim “entirely meritless and simply an attempt to distract from its own significant legal exposure resulting from its persistent violations of Tribune’s contractual rights.”
The collapse of the deal was all Sinclair’s fault, the release says. “Sinclair’s misconduct culminated in its submitting to the [FCC] divestiture proposals that led the Commission to order a hearing on the fundamental issue of Sinclair’s lack of candor, thus ending any chance at merger approval in any reasonable timeframe.
“Tribune looks forward to holding Sinclair accountable in court.”
Under terms of the agreement, the Sinclair countersuit says, Tribune and Sinclair were both required to make their “reasonable best efforts” to bring the deal to fruition.
“But the Merger Agreement did not make Sinclair a guarantor of the outcome of the regulatory process. Nor did the Merger Agreement preclude Sinclair from attempting to bargain with the regulators in an effort to negotiate the best terms available.”
“Notwithstanding Tribune’s self-serving and after-the-fact attempts to distance itself from Sinclair and its own efforts to obtain approval of the transaction, Tribune and Sinclair in fact were full partners in the DOJ approval process (albeit with a few disagreements along the way), which ultimately was on the verge of success, and full partners in the FCC approval process (with no meaningful disagreements along the way), which unfortunately was not successful.”
What’s more, the countersuit says, Tribune’s complaints about how Sinclair handled the Justice Department are not only “inaccurate and misleading,” but also “irrelevant” because Justice was prepared to approve the deal after negotiating with Sinclair.
The filing calls FCC Chairman Ajit Pai’s July 16 announcement that he had “serious concerns” about the merger “stunning and wholly unexpected.”
At Pai’s urging, the full commission vote three days later to refer the merger for a hearing before an administrative law judge — a move that, at best, would indefinitely delayed FCC approval and, at worst, would lead to its flat-out rejection.
At the heart of the FCC’s action were questions about whether Sinclair had misled the FCC and that it was, in fact, the “real-party-in-interest” in the companies to which Sinclair had proposed spinning off stations in Chicago, Dallas and Houston to comply with local FCC ownership rules.
Even though the hearing order “came out of nowhere and, in Sinclair’s view, was unprecedented as to both substance and process,” Sinclair says in its claim that it remained focused on addressing the FCC concerns and winning its approval.
“Unfortunately, Tribune did not share that mission. Instead, Tribune breached its obligations under the merger agreement to exercise its own reasonable best efforts to close the transaction.
“Within hours of the issuance of the [hearing order], Tribune issued a press release stating that ‘Tribune Media has now had the opportunity to review the FCC’s troubling Hearing Designation Order…. We will be greatly disappointed if the transaction cannot be completed.’ This signaled to the market and to the regulators that Tribune was distancing itself from Sinclair and the transaction.”
Sinclair also charged that Tribune was fully aware of the plans for spinning off the three stations.
“Indeed, Tribune approved the filing of the FCC application as the licensee and assignor of WGN [Chicago], something that Tribune easily could have refused to do if Tribune actually thought that divestiture to Mr. [Steve] Fader was problematic.”
Likewise, Sinclair says, Tribune never objected to Cunningham Broadcasting as the buyer of the Dallas and Houston spinoffs.