FCC raises concerns about Sinclair-Tribune deal, shares fall

WASHINGTON, July 16 (Reuters) - Federal Communications Commission Chairman Ajit Pai questioned Sinclair Broadcast Group Inc’s proposed $3.9 billion acquisition of Tribune Media Co, in a surprise decision that could potentially scuttle the deal and sent shares of both companies tumbling.

Pai, a Republican, said evidence presented to the agency as part of the approval process suggested divestiture of certain television stations "would allow Sinclair to control those stations in practice, even if not in name, in violation of the law."

Pai, whom Democrats have accused of making a string of decisions benefiting Sinclair, proposed referring the matter to an administrative law judge. The move could result in a lengthy delay and could effectively kill the deal, as in other mergers referred for administrative proceedings.

Tribune shares fell 16.8 percent to $32.10, while Sinclair dropped 10.6 percent to $29.45 after Pai said he had “serious concerns” about the deal.

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Sinclair, the top U.S. television broadcast group, did not respond to numerous requests for comment. Tribune declined to comment. Pai and Sinclair have previously denied the Democrats' accusations.

Sinclair, which owns 192 stations, said in May 2017 that it planned to acquire Chicago-based Tribune’s 42 TV stations in 33 markets.

In April, the company said it would sell 23 TV stations to obtain the necessary regulatory approvals. It needs FCC permission to own more than one station in some markets.

The transaction has come under harsh criticism from many Democrats and some state attorneys general because it would lead to significant TV station consolidation in the United States. Sinclair, based in Hunt Valley, Maryland, has said that if the deal was approved, it would reach nearly 59 percent of the nation’s television households.

Conservative news outlet Newsmax, which owns a cable TV channel, has also criticized the deal. But President Donald Trump has defended Sinclair, tweeting in April that the company was “far superior to CNN.”

A majority of the FCC voted to approve the draft order circulated by Pai's office to refer the transaction for a hearing, a person briefed on the matter said.

"It's widely recognized that when something is set for a hearing that the deal is not going to survive," said Gigi Sohn, a top aide to former FCC Chairman Tom Wheeler.

FCC Commissioner Jessica Rosenworcel, a Democrat, said that after a string of policies "custom built" to support Sinclair, “the agency will finally take a hard look at its proposed merger with Tribune.”

In the draft order, a part of which was seen by Reuters, Pai wrote that the deal raised an issue that "includes a potential element of misrepresentation or lack of candor" that must be resolved before the FCC gives it a go-ahead.

That could amount to "misconduct," the order said.

The draft order raised questions about the divestiture of stations in Dallas and Houston as well as representations made by Sinclair about the divestiture of WGN-TV in Chicago.

Two FCC officials briefed on the matter said the language in the order made it extremely unlikely that Sinclair would be able to proceed with the merger as planned.

The order "could also (put) pressure on them to divest more stations cleanly in the open market," said Gene Kimmelman, president of the advocacy group Public Knowledge. (Reporting by David Shepardson and Diane Bartz Editing by Chizu Nomiyama, Jeffrey Benkoe and Jonathan Oatis)