The demise of a $3.9 billion megamerger of U.S. broadcasting giants preceded stock gains for both parties during the week ended Aug. 10, despite a pending legal challenge related to the failed transaction.
Tribune Media Co. is suing Sinclair Broadcast Group Inc. for breach of contract due to what Tribune described as "a regulatory strategy reflecting its own self-interests rather than its contractual obligations." That strategy included a merger-related divestiture plan that the Federal Communications Commission later questioned and ultimately referred to a judge for further scrutiny.
Tribune on Aug. 9 terminated its agreement with Sinclair and filed a lawsuit against its jilted merger partner in the Delaware Chancery Court. The lawsuit seeks compensation of about $1 billion for all losses incurred as a result of Sinclair's alleged breaches of the merger agreement. Tribune CEO Peter Kern said on a conference call with analysts that the fault for the collapse of the transaction lies solely with Sinclair, and his company is "confident" in its legal position.
In response, Sinclair President and CEO Chris Ripley in a statement reiterated the company's earlier denial of any wrongdoing and Sinclair will "vigorously" defend itself in court from what its executives view as a lawsuit without merit.
Under the failed deal, struck in May 2017, Sinclair had sought to acquire 42 Tribune stations in 33 markets, as well as cable network WGN America (US), a minority stake in Food Network (US) and an array of real-estate assets.
The merger had raised concerns that it would afford Sinclair, already one of the largest U.S. broadcast station owners, too much power and reach in broadcast TV. Sinclair attempted to address regulatory concerns about its reach through proposed station divestitures. However, its divestiture plan was questioned in July when the FCC referred the deal to an administrative law judge for review, a process that could take months or even years. In its order, the FCC questioned whether three specific proposed station sales contemplated as part of the deal were "sham" transactions.
After Tribune announced its intent to terminate the deal, Sinclair filed to withdraw its applications for the deal with the FCC and requested the agency's pending administrative law judge hearing related to the transaction be terminated. The same day, Sinclair announced its board had authorized the company to repurchase up to $1 billion of its class A common shares.
Sinclair's shares were trading at $28.10 midday Aug. 10, up about 9% for the week; Tribune's shares were trading at $34.85, up 2.7% from their Aug. 3 close.
Elsewhere in the media and communications space, investors reacted to a slew of new earnings reports.
Snapchat-parent Snap Inc.'s shares dipped after the social media company posted a drop in daily active users due to its recent redesign. DAUs fell by 2% sequentially in the second quarter, to 188 million. Snap has experienced pushback over a platform update rolled out in February that many users criticized as confusing and difficult to use.
Snap shares were trading at $12.28 around 12 p.m. ET Aug. 10, down 3.6% for the week.
Viacom Inc.'s shares moved in a more positive direction after its earnings report Aug. 9, in which the company beat consensus expectations on earnings but missed slightly on revenue, according to estimates data gathered by S&P Global Market Intelligence. Viacom President and CEO Bob Bakish said on an earnings call that revenues at Paramount TV have grown rapidly in recent years, to more than $400 million expected in fiscal 2018. He said the company is ramping up content production with an eye toward building Paramount TV into a $1 billion business by 2020.
Viacom's shares were trading at $30.44 midday Aug. 10, up 4.6% for the week.
Discovery Inc.'s stock dropped for the week. In its first full quarter since acquiring Scripps Networks Interactive Inc. in March, the company delivered bottom-line results that fell short of Wall Street estimates.
Net income in the June quarter available to Discovery totaled $216 million, or 30 cents per share, down from $374 million, or 64 cents per share, in the second quarter of 2017. The normalized S&P Capital IQ consensus EPS estimate for the quarter was 86 cents.
The company's net income during the period was negatively impacted by restructuring and other charges associated with the integration of Scripps, higher interest expense and other one-time items.
Discovery's shares were trading at $26.03 around 12 p.m. ET Aug. 10, down 3.8% for the week.