The much-discussed $3.9 billion acquisition of Tribune Media by Sinclair Broadcast Group Inc. is now in serious question after the discovery of undisclosed facts and relationships. A hearing has been called and many believe that Sinclair will drop its bid to avoid the highly damaging adjudication of these issues. On Wednesday, the Federal Communications Commission unanimously voted that undisclosed facts by Sinclair was enough cause for concern that it should be reviewed independently by an administrative judge. That hearing designation order raised the concern that, in light of the new information, the deal may “not be in the public interest.”
The deal would have allowed Sinclair to reach 72 percent of American households. The deal was controversial both in its legal basis and the role of FCC Chairman Ajit Pai in his communications with the company. However, even Pai joined in this decision in light of the undisclosed information.
The new information shows that companies that were supposed to be divested would actually remain connected to Sinclair or its executive chairman and controlling shareholder, David Smith. For example, Sinclair failed to reveal that WGN-TV (the much loved station for all of us Cubbie fans) would be sold to Steven Fader . However the price of $60 million seemed well below market value and it turns out that Fader has a close relationship with Smith. He is the CEO of Atlantic Automotive Group (Atlantic) and Smith hold a controlling interest in Atlantic and serves as a member of its board of directors. Atlantic is also a tenant of Sinclair’s and a major advertiser.
Likewise, Sinclair failed to disclosure that stations in Dallas and Houston that were set to be sold off to another company with cross ties: Cunningham Broadcasting.Michael Anderson , a Sinclair associate allegedly bought $400,000 worth of Cunningham shares at a rate that is viewed as well below market rate. There are also Sinclair family members involved with Cunningham and Sinclair retained the right to buy back the stations in the future, according to the FCC.
The failure to disclose this and other information is quite shocking and raises the question of potential liability beyond the loss of the acquisition. While there is no evidence of criminality thus far, the relationships could be investigated for possible fraud or insider trading or false statements to federal investigators. There is also the question of the role of counsel in signing off on disclosure representations.
Frankly, the undisclosed information in the filings is quite alarming. It is hard to believe that counsel and corporate figures thought that they could get away in withholding such information in such a high-visibility venture. In the end, they may have burned their deal, burned their allies on the FCC, and may have burned themselves in spectacular fashion.