Sinclair Spin Offs Expected in St. Louis, Seattle; May Depend on DOJ

With the exact nature of expected divestitures from Sinclair buying Tribune likely depends on DOJ, industry officials and analysts said in interviews they expect stations to be spun off in the Seattle and St. Louis areas and that 21st Century Fox is a likely buyer. Broadcast attorneys and analysts don’t draw any conclusions from the FCC’s stopping of the deal shot clock Thursday (see 1801110063). Since the 180-day shot clock is largely a formality anyway, the agency’s decision to start or stop it rarely signifies much, said Holland and Knight broadcast attorney Charles Naftalin. “I wouldn’t read too deep into the tea leaves.”

Fox has an interest in owned stations and doesn’t currently have any in the Seattle and St. Louis areas, where Sinclair/Tribune would create overlaps, said Justin Nielson, senior researcher for S&P Global Market Intelligence. Nexstar and Tegna are also possible buyers of Sinclair spin-offs, but Fox “makes the most sense” Nielson said. Sinclair hasn’t indicated any specific divestiture plans, and may not yet be sure of the direction, industry officials said. Sinclair said in recent FCC filings that DOJ review could influence divestiture plans, and a broadcast executive said it’s likely Sinclair needs a final word from Justice to finalize which stations will be unloaded. Sinclair, Fox and the department didn’t comment.

Though Sinclair used the phrase “Top-4 showings” in recent filings that also mentioned recent changes to ownership rules (see 1801100032) , industry lawyers said it’s not clear if the broadcaster was referring to possibly seeking FCC approval to own two top-four network stations in some markets, or a showing that one of two commonly owned stations isn’t a top-four station, as was common in deals under the previous media ownership rules.

Since FCC criteria for approving commonly owned top-four combinations isn’t yet known, attorneys said it will be difficult for deals dependent on FCC case-by-case approval to come together. Sinclair/Tribune may be able to buck that expectation since the deal is already largely worked out, said Fletcher Heald broadcast attorney Dan Kirkpatrick. Since the takeover likely was designed with divestitures as a prospect and could proceed even if top-four combinations aren’t granted, Sinclair/Tribune may be in a unique position to be a guinea pig for the FCC’s new rules, he said. If Sinclair does get FCC approval for some top-four combinations, more applications involving such arrangements could follow close behind, since broadcasters would then have a road map, Kirkpatrick said.

The shot clock freeze is likely a response to new information, as the Media Bureau said, analysts and attorneys said. “Whenever the terms of a deal change materially,” the FCC needs to take notice, Cowen analyst Paul Gallant said. Since the divestitures will change the deal, it makes sense to pause the deal review until information about the expected divestitures is available, Kirkpatrick said. The shot clock pause and the likely divestitures haven’t cooled investor enthusiasm for the deal, Gallant said, since divestitures were always expected. The deal is still widely expected to be approved, said industry legal practitioner Howard Weiss.