Tribune's Sinclair Complaint Likely End: Settlement, Not Trial

Tribune’s $1 billion breach of contract lawsuit against Sinclair (see 1808090042) is expected to end with a settlement, and Sinclair would seek to conclude it relatively quickly, said analysts, attorneys and academics in interviews. Since Sinclair/Tribune deal was valued at $3.9 billion, Tribune’s seeking more than a quarter of the value as damages is likely “posturing,” leading to a much smaller payout, said George Mason University School of Business assistant finance professor Derek Horstmeyer.

Since the breakup last week, Sinclair asked the FCC to terminate the administrative law judge hearing on allegations of a lack of candor in Sinclair’s divestitures. The Enforcement Bureau Friday said in docket 17-179 it supports terminating the hearing, but it requires an ALJ ruling to “dispose” of the hearing process (see 1808100026). With the hearing still alive, Sinclair, Tribune and a number of deal opponents filed notices of appearance in the proceeding. The FCC hearing designation order (HDO) is being published in Thursday's Federal Register, establishing a Sept. 14 deadline for filing motions to intervene.

The $1 billion figure is the “lost premium to Tribune’s stockholders,” said the complaint in Delaware Chancery Court last week. The complaint seeks “additional damages in an amount to be proven at trial” and attorney’s fees. Tribune and Sinclair didn’t comment. Sinclair said in a response that the suit is “without merit” and that it intends “to defend against it vigorously.”

The Sinclair/Tribune agreement didn’t include any breakup fees to be paid to Tribune, and broadcast attorneys unconnected to the deal have characterized the suit as intended to get the equivalent of a termination fee for Tribune. The termination fees in the agreement that were to go to Sinclair in the event of Tribune backing out of the deal top out at $135.5 million, which suggests Tribune is unlikely to get the $1 billion it’s seeking, Horstmeyer said.

The two sides are seen likely to settle because an actual trial is likely to lead to discovery motions that could make public information neither side wants released, said Garvey Schubert broadcast lawyer Erwin Krasnow. An ongoing suit also would create uncertainty that could make it harder for Sinclair to pursue future deals, said Cowen analyst Paul Gallant. The case is unlikely to reach trial, lawyers said.

If the case were to go to trial, proving the actual merits of Tribune’s complaint could be difficult, attorneys said. Tribune argues Sinclair failed to use “reasonable best efforts” to get regulatory approval, but that could be open for debate despite some of the details in the complaint, lawyers said. Though the HDO and ALJ proceeding are likely evidence in Tribune’s favor, it could be difficult to prove Sinclair’s behavior caused the deal to fail, they said. Sinclair could argue many factors were at play, such as pressure from outside parties and political considerations, said Georgetown University law professor Gregory Klass, who studies contract law. That could make it “impossible to show that Sinclair’s actions caused the merger’s downfall," he said.