Sinclair Broadcast Group Inc. shares dropped Friday after judges questioned a rule change that made way for the broadcaster’s proposed acquisition of Tribune Media Co., raising the possibility of turmoil for the $3.9 billion deal.
According to Bloomberg, judges at the U.S. Court of Appeals for the D.C. Circuit questioned why the Federal Communications Commission had reinstated a rule allowing owners of some TV stations to count just part of their audience when tallying holdings against a national limit of 39 percent.
The issue is important to Sinclair’s proposed purchase of Tribune, which would leave it covering 72 percent of U.S. households -- or about 45 percent when counting half the audience as allowed under the embattled rule.
One judge on the three-judge panel likened the FCC’s continuing the audience-counting discount, which is based on limitations from an obsolete broadcast technology, to keeping a moribund body on life support.
If the FCC loses, the court could order the agency to reconsider an approval of Sinclair’s deal, Schettenhelm said.
Wells Fargo analyst Marci Ryvicker said she disagrees that the outcome of the case may pose a risk to the deal. The FCC has a good change of winning, Ryvicker said in a note.
“Even if the FCC does lose, the court cannot ‘force’ the agency to redo its approval of this deal,” Ryvicker said, adding that Sinclair can’t be forced “to unwind the transaction.”
The outcome should have “LITTLE TO NO IMPACT” on the merger, Ryvicker said.
Sinclair is “working to finalize matters” with antitrust regulators who are scrutinizing the deal for its effect on competition at the Justice Department, according to an April 18 filing by the company at the FCC, which also is vetting the merger.
The Maryland-based broadcaster has said it’s willing to sell TV stations to comply with ownership limits. Its purchase as proposed would include 42 Tribune stations, including outlets in New York and Chicago.
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