Aug. 9 (UPI) -- Tribune Media on Thursday pulled out of a deal to acquire Sinclair Broadcast Group, and is suing for breach of contract, after the group came under scrutiny from U.S. regulators.
The $3.9 billion acquisition was announced in May after Sinclair won the rights to Tribune Media at auction, which would have given Sinclair ownership or control of television stations in 72 percent of U.S. markets, including majors like New York City, Chicago and Miami. It also would've given the group 28 percent of Fox Broadcasting affiliates.
Tribune's reversal Thursday came after federal regulators questioned Sinclair's honesty last month and requested a hearing about the matter.
The Federal Communications Commission questioned whether some of Sinclair's divestments were a "sham," because they were sold to parties close to the company and in agreements that would still allow Sinclair to operate the stations.
"In light of the FCC's unanimous decision, referring the issue of Sinclair's conduct for a hearing before an administrative law judge, our merger cannot be completed within an acceptable timeframe, if ever," Tribune CEO Peter Kern said in a statement. "This uncertainty and delay would be detrimental to our company and our shareholders ... and, by way of our lawsuit, intend to hold Sinclair accountable."
The $1 billion lawsuit, filed in Delaware Thursday, said Sinclair knew it was taking a substantial risk by concealing from the FCC information about its relationships with certain buyers, putting undue pressure on the regulatory process and putting the merger at risk.
"Tribune made clear that Sinclair's decision to push the envelope as to what regulators might permit when those regulators had clearly and repeatedly indicated opposition, was irreconcilable," the suit states.
"But Sinclair was impervious to appeals to its contractual obligations. It intended to pursue its own narrow self-interest regardless of its obligations until the FCC found its conduct so egregious as to merit administrative review.
"Tribune is now the victim of that outrageous obduracy."
After Tribune's announcement, Sinclair withdrew its FCC applications to acquire Tribune and filed a motion to terminate the hearing.
Sinclair said in a statement it did not mislead the FCC, but acknowledged the hearing process would've been a "long and burdensome process" and not in the best interest of Tribune's company and shareholders.
"We are extremely disappointed that after 15 months of trying to close the Tribune transaction, we are instead announcing its termination," said Sinclair CEO Chris Ripley. "We unequivocally stand by our position that we did not mislead the FCC with respect to the transaction or act in any way other than with complete candor and transparency."
As for Tribune's lawsuit, Ripley said Sinclair "fully complied with our obligations under the merger agreement and tirelessly worked to close this transaction."
"The lawsuit described in Tribune's public filings today is entirely without merit, and we intend to defend against it vigorously."