Today, Brian Hess along with Gene Kimmelman, President, Public Knowledge; Gigi Sohn, Distinguished Fellow, Institute for Technology Law and Policy, Georgetown University Law Center; and Andrew Schwartzman, Benton Senior Counselor, Institute for Public Representation, Georgetown University Law Center sent the below letter to the Tribune Media Board of Directors. The letter encourages the Board to immediately withdraw from the merger with Sinclair Broadcasting. You can view a PDF of the letter here.
Dear Tribune Media Board Members,
Fourteen months after you and your shareholders approved the acquisition of Tribune Media (“Tribune”) by Sinclair Broadcast Group (“Sinclair”), Federal Communications Commission (“FCC”) Chairman Ajit Pai announced on July 16, 2018 that he had “serious concerns about the Sinclair/Tribune transaction” and circulated to the three other sitting commissioners a hearing designation order (“HDO”), under which an administrative law judge would review the proposed merger. The next day, Tribune stated that it “expects to work with the FCC to explore ways to address the concerns identified.” Yesterday, July 18, 2018, the Commission unanimously adopted the HDO.We believe that the only reasonable and prudent action under your fiduciary duty as Tribune directors is to abandon the proposed sale to Sinclair Broadcast Group and focus entirely on the responsible management of your company. Tribune now appears to have the contractual right under the merger agreement to terminate and withdraw from the agreement.
Tribune’s obligation to consummate the merger is conditioned on Sinclair’s representations and warranties being true and correct in all respects. In addition, Tribune may terminate the agreement if Sinclair failed to perform any of its representations and warranties. Sinclair committed in the agreement that it would provide the FCC with applications, reports, or informational filings required under the Communications Act and FCC rules. The FCC has unanimously determined that Sinclair may have “engaged in misrepresentation and/or lack of candor in its applications with the Commission,” in possible violation of the Communications Act and FCC rules. Thus, because Sinclair failed to satisfy its commitments under the merger agreement, Tribune can and should invoke its termination right under the merger agreement. Such termination would not trigger the liquidated damages provisions of the merger agreement.
Even if Sinclair and Tribune make further attempts to amend their application, the parties’ agreement terminates on August 18, 2018. The FCC’s unanimous adoption of the HDO makes it highly unlikely that the adjudication will end by that date. Tribune should not agree to any extension of that termination date.
As demonstrated by the abandoned Comcast/Time Warner Cable, AT&T/T-Mobile, DISH/DIRECTV, and other would-be mergers designated for hearing by the FCC, an HDO is a material impediment to closing a transaction. It is, most often, a fatal blow. This case is no different. The likelihood that you will “work with the FCC” to resolve the myriad regulatory problems raised by this transaction and ultimately close your transaction with Sinclair appears to be de minimus at best. Even if, as Sinclair stated on July 18, 2018, it will restructure its proposed divestitures to comply with the law, that does not address possible misrepresentations made by Sinclair during the merger review process.
Moreover, terminating the merger agreement would best serve the interests of Tribune's shareholders, employees, and viewers. Tribune Media shares decreased from a high of $42.20 on July 24, 2017, to $32.79 on July 16, 2018, representing hundreds of millions of dollars in lost market capitalization. Nothing in the FCC’s recent action suggests a reversal of this downward trend. Pursuing the sale to Sinclair at this point only serves to further degrade the value of your -- indeed, our -- assets. Furthermore, every additional day of uncertainty harms personnel and capital investment, undermining the company’s ability to serve the public with quality news and information. This is an abdication of your duty to uphold the public interest, which remains a basic tenet of your FCC broadcast licenses.
We believe that you therefore have only two options: either take immediate action to terminate your agreements for the sale of your company to Sinclair Broadcast Group, or resign as directors of Tribune Media.
Gene Kimmelman, President
Brian Hess, Executive Director
Sports Fans Coalition, Inc.
Gigi Sohn, Distinguished Fellow
Institute for Technology Law and Policy
Georgetown University Law Center
Andrew Schwartzman, Benton Senior Counselor
Institute for Public Representation
Georgetown University Law Center