Sinclair Broadcasting Files Countersuit Against Tribune for Giving Up on Deal

Sinclair Broadcast Group 2004 - Getty - H 2017
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If you don't succeed, try try again. Failing to do so can have consequences. That's basically the message in a counterclaim filed on Wednesday by Sinclair Broadcasting against Tribune Media in Delaware Chancery Court.

Sinclair was set to acquire most of Tribune's 42 TV stations and the national network WGN America when it ran into regulatory resistance. Specifically, the Federal Communications Commission expressed concern about proposed station divestitures that would allow Sinclair to control those stations in practice. Regulators thought Sinclair was being misleading about its "side-car" arrangements and threw the review to an administrative law judge.

On Aug. 9, the $3.9 billion deal was officially off.

That day, Tribune filed a billion dollar lawsuit and presented Sinclair as being extraordinarily stubborn throughout the process of dealing with regulators at the Justice Department and the FCC. For instance, Sinclair allegedly told DOJ lawyers at one point: "Sue me."

A countersuit (read here) now gives a slightly different perspective.

Sinclair says that Tribune had a contractual obligation to use "reasonable best efforts" to close the transaction. For a while, everything was allegedly hunky dory — at least in terms of the relationship. Sinclair says the two were "full partners" in the regulatory approval process, and that while Tribune had a "few disagreements along the way," the parties had a "shared strategy."

Then came the FCC bombshell.

Sinclair's lawyers paint it as "stunning," "out of nowhere" and "unprecedented as to both substance and process."

"Sinclair nevertheless remained focused on exploring all potential options to address the FCC’s concerns and publicly announced that it remained fully committed to closing the Transaction," states the company. "Unfortunately, Tribune did not share that mission. Instead, Tribune breached its obligations under the Merger Agreement to exercise its own reasonable best efforts to close the Transaction."

Most observers thought the deal was in trouble at that point, but Sinclair presents itself as unwavering. Tribune, not so much.

Sinclair points to a Tribune press release conveying how its would-be partner would be "greatly disappointed if the transaction cannot be completed" and alleges it was a signal that Tribune was distancing itself from Sinclair.

"Tribune’s reaction was remarkable because, while the issuance of the [FCC's] HDO came as a complete surprise to both Sinclair and Tribune, Tribune was well aware of the public objections to the proposed divestitures," continues the countersuit. "Indeed, Tribune and Sinclair had worked shoulder-to-shoulder on the various submissions to the FCC to facilitate those divestitures and on the joint responses to the public objections to those divestitures. ... Although Tribune now claims (without any support) that it warned Sinclair that these divestitures were problematic and unlikely to be approved, Tribune’s outside regulatory counsel struck a markedly different tone when offering his thoughts on the draft submission — stating that 'I think we have the better of all the arguments on the merits.'"

Sinclair discusses its efforts to get the deal closing back on track. That includes settlement discussions with the FCC, raising the possibility of extending the merger deadline with Tribune and engaging a lobbying firm to convince those in Washington that the merger was in the public interest. (It appears to have at least worked on President Donald Trump, who tweeted his support.)

Tribune declined to join the public advocacy efforts, Sinclair says, and substantively "washed its hands of the transaction."

About Tribune's lawsuit?

Sinclair's legal team, asserting breach of contract and seeking an unspecified amount of damages, writes, "Read most charitably, the Complaint reflects a revisionist history aimed at deflecting responsibility away from Tribune. More likely, it reflects a deliberate effort to exploit and capitalize on an unfavorable and unexpected reaction from the FCC to capture a windfall for Tribune."