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Tribune CEO pledges to hold Sinclair 'accountable for its actions' with lawsuit


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Tribune CEO pledges to hold Sinclair 'accountable for its actions' with lawsuit

While Tribune Media Co. executives said they are "disappointed" with the end of the Sinclair Broadcast Group Inc. transaction, they said the company is nevertheless ready to execute on several fronts, including in pursuing a lawsuit against Sinclair and remaining open to new alternatives for growth.

Tribune on Aug. 9 terminated its merger agreement with Sinclair and filed a lawsuit against the broadcaster in the Delaware Chancery Court for allegedly breaching the merger agreement between the two companies. The lawsuit seeks compensation for all losses incurred as a result of Sinclair's material breaches of the agreement.

Specifically, Tribune is seeking approximately $1 billion reflecting a lost premium to Tribune’s stockholders and additional damages in an amount to be proven at trial.

Speaking during an Aug. 9 earnings conference call, Tribune CEO Peter Kern said that the company is "confident" in its legal position. "We will vigorously pursue the rights of our shareholders by holding Sinclair accountable for its actions," he said.

The dissolution of the merger and the lawsuit come one day after both Sinclair and Tribune had the right to terminate the merger if it was not completed by Aug. 8. Under the proposed $3.9 billion deal, first announced in May 2017, Sinclair aimed to acquire 42 Tribune stations in 33 markets, cable network WGN America (US), minority stakes in Food Network (US), plus an array of real-estate assets.

The merger faced opposition from a number of consumer and media groups on the grounds it would afford Sinclair too much power and reach within the broadcast community. Sinclair had sought to assuage regulatory concerns through a number of station divestitures, but on July 18, the U.S. Federal Communications Commission unanimously voted to refer the deal to an administrative law judge for review, a process that could take months or years and that was widely viewed as a death knell for the transaction. In its order, the FCC questioned whether three proposed station sales contemplated as part of the deal were "sham" transactions.

The U.S. Department of Justice also reportedly launched its own investigation into whether collaboration between Sinclair, Tribune and other TV station group owners resulted in higher advertising pricing. The review evidently stemmed from government officials' examination of Sinclair's attempt to buy Tribune.

Kern said during the Aug. 9 conference call that the fault for the collapse of the transaction lies squarely with Sinclair.

"Since announcing the transaction in May of last year, we have done everything we could to assist Sinclair in getting through the regulatory process, and it's been a huge undertaking for our company to manage through this prolonged exercise while also keeping our business running strong. Unfortunately, Sinclair chose to follow a regulatory strategy reflecting its own self-interests rather than its contractual obligations," he said.

In a statement responding to Tribune's comments, Sinclair President and CEO Chris Ripley reiterated the company's earlier denial of any wrongdoing and said Tribune's lawsuit lacked merit. "We unequivocally stand by our position that we did not mislead the FCC with respect to the transaction or act in any way other than with complete candor and transparency," Ripley said, adding that the company intends to "vigorously" defend itself in court.

Sinclair also 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.

Ripley acknowledged, however, the "long and burdensome process" that would result from the FCC's decision to refer the deal review to an administrative law judge and how that led Tribune to conclude that "pursuing the transaction was not in the best interest of [Tribune's] company and shareholders."

As for Tribune, Kern said the company is looking forward to refocusing on growing its core broadcast and cable assets. Noting that the merger has been a "significant distraction" for the past 15 months, he said it is "nice to be able to turn everybody's attention back to job one."

As to whether Tribune might consider other strategic alternatives now that the Sinclair deal has ended, Kern did not give a firm yes or no. But he noted that he sees the regulatory environment as "welcoming and open to sensible consolidation."

"We really like our position and we're performing well and given our balance sheet and given our assortment of assets, we remain open to all opportunities ... in terms of further consolidation in the industry as well as pushing our businesses as far as we can push them," he said.

For the second quarter, Tribune reported net income attributable to the company of $84.4 million, or 96 cents per share, up from an attributable net loss of $30.4 million, or 35 cents per share, in the year-ago period.

Consolidated operating revenues for the second quarter totaled $489.4 million, up 4% year over year. The increase was primarily driven by higher retransmission revenues, carriage fee revenues and political advertising revenues, partially offset by lower net core advertising revenues.