Sinclair Pleaded for Meeting With Pai, Knew Amendment Wouldn't Stop HDO

Sinclair told FCC Chairman Ajit Pai it didn’t have the time or authority to withdraw the deal to buy Tribune after a hearing designation order (HDO) circulated, said an email from General Counsel Barry Faber to Pai Wednesday. It was filed the next day and posted Friday in docket 17-179 as an ex parte by Commissioner Jessica Rosenworcel’s office. The email mentions a Tuesday call between Faber and Pai. The draft HDO was announced July 16 (see 1807190060) and released Thursday.

“Such a momentous decision was simply not one that could be fully considered and made in the brief period of time provided to us,” said Faber in the email. He conceded that withdrawing the offending divestitures might not be enough to make the HDO’s issues of misrepresentation go away, saying Sinclair wasn’t allowed to meet with Pai while the deal was pending. “I realize that you appear to have been unwilling to discuss this matter for the past several months (and for that reason our counsel and Tribune's have been reaching out everyone at the FCC but you),” Faber wrote.

“The leadership of the Media Bureau was the Commission’s point of contact with the applicants, and Chairman Pai has full confidence in the manner in which the Bureau conducted those discussions,” said an FCC spokesperson. A broadcast lawyer noted requiring deal applicants go through bureaus rather than meet with the chairman’s office is normal procedure. The chairman’s office declining to meet privately with Sinclair also makes sense considering congressional and inspector general scrutiny of Pai’s relationship with Sinclair, attorneys said. If such meetings took place, opponents would likely seek to use documentation of those meetings against Pai or the deal, said Fletcher Heald's Dan Kirkpatrick. Tribune didn't comment.

Withdrawing from the deal “would have required Board approval, which we do not have, and even if management was prepared to recommend such action and the Sinclair Board were inclined to approve such action, we would not even have the unilateral right to have done so under our contract with Tribune,” said Faber. Though executives during big takeovers are often empowered to make related moves, it’s plausible that such a big step would require special permission, industry lawyers said. It might have been possible for Sinclair to ask for more time to secure permission from its board and Tribune, but it offered the amended divestitures instead, broadcast attorneys said. It may also have been possible for Sinclair’s leadership to act without board approval to withdraw the regulatory applications without dissolving the deal, said one.

Faber knew Tuesday that withdrawing the divestitures wouldn’t prevent the HDO. The amended divestitures were filed Wednesday (see 1807180060). “You told me yesterday that the withdrawal of these three applications would not prevent you moving forward with the HDO, but I am writing to ask you to reconsider,” Faber said, saying delay would also be acceptable. “I understand that if Sinclair has not been completely truthful and forthcoming with regard to these proposed sales, abandoning them would not eliminate such unacceptable behavior.” Faber's email also denied that Sinclair had misled the FCC.

Officials hadn’t previously suggested a lack of candor, Faber said. “Despite an ongoing dialogue with the FCC regarding the structure of the transaction, at no time has anyone at the FCC ever raised any concerns that Sinclair was being less than candid.” Officials didn’t ask for additional information on the divestitures in question, he said. “We could have adequately explained to the FCC the underlying basis for the transaction terms, eliminating any concern that the deals were anything other than arm's length agreements,” Faber said. “I appeal to your sense of fairness and procedural transparency to ask that we be given that opportunity now.”

Faber’s call and another communication by Sinclair outside counsel Miles Mason were documented in other new filings. The lawyers contacted Pai and bureau Chief Michelle Carey Tuesday after Pai circulated the order (see 1807190060) to offer changes to the deal to buy Tribune. Faber told the chairman “Sinclair was willing to withdraw the divestiture applications with respect to the stations in Chicago, Dallas and Houston that he understood would be the subject of the HDO,” said a filing. Mason phoned Carey, said a second filing. “I asked Ms. Carey about the stations to be covered by the order and told Ms. Carey that Sinclair was willing to withdraw the applications with respect to those stations, to acquire WGN-TV and to divest the other stations to a different third party, and asked that she communicate this to the Chairman’s office."

Tribune should withdraw from the deal or its board should resign, said a letter sent to the takeover target's board Thursday by Public Knowledge President Gene Kimmelman, Sports Fan Coalition Executive Director Brian Hess, Gigi Sohn of the Georgetown Law Institute for Technology Law and Policy, and Georgetown Law Institute for Public Representation Senior Counselor Andrew Schwartzman. “The only reasonable and prudent action under your fiduciary duty as Tribune directors is to abandon the proposed sale” and “focus entirely on the responsible management of your company,” the deal opponents said. Since the FCC decided Sinclair may have engaged in misrepresentation needing a hearing, Sinclair failed to hold up its agreement with Tribune, the letter said. “Tribune can and should invoke its termination right.” An HDO is “most often, a fatal blow” to a transaction, the letter said. Ending the deal best serves the interests of Tribune’s shareholders, because the company is harmed by each day of uncertainty caused by the stalled transaction, the letter said.