The FCC likely just killed the $3.9B Sinclair-Tribune merger

The FCC has approved a hearing designation order for the Sinclair-Tribune deal. (FCC)

Despite Sinclair revising its $3.9 billion Tribune merger to address some concerning station divestitures, the FCC has ordered a hearing on the deal and may have derailed it for good.

On Wednesday night, the FCC unanimously voted to adopt a Hearing Designation Order (HDO) regarding the Sinclair-Tribune transaction and said it expects the HDO will be released publicly on Thursday.

The decision comes after FCC Chairman Ajit Pai earlier this week publicly stated (PDF) his qualms about the merger.

Sponsored by Dell Technologies

Whitepaper: How to Elevate Your Content Delivery Workflows With Dell EMC PowerScale

Learn how Dell EMC PowerScale helps meet surging viewer demand while reducing costs with a single centralized platform for the ingest, processing, and delivery of the content your viewers love.

“Based on a thorough review of the record, I have serious concerns about the Sinclair/Tribune transaction. The evidence we’ve received suggests that certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law,” Pai said.

RELATED: Sinclair changes Tribune deal to assuage FCC concerns

Sinclair, despite claiming that it had not seen the HDO, revised its merger plan based on Pai’s statement and press reports. The company halted planned sales of stations in Dallas and Houston to Cunningham Broadcasting, which is owned by the estate of Sinclair Executive Chairman David Smith’s mother, Carolyn Smith. Sinclair also opted to buy WGN-TV in Chicago instead of selling it to a newly formed company headed by Steven Fader, CEO of Atlantic Automotive, a Maryland auto dealership group in which Smith holds a controlling interest.

But as Jefferies analyst John Janedis notes, the move may be too little, too late to save the merger.

“Despite [Sinclair’s] putting forth a new proposal regarding the divestiture of the 3 stations supposed to be in question (Dallas, Houston, Chicago), the FCC voted unanimously to refer the SBGI/TRCO transaction to an administrative law judge—likely killing the deal,” Janedis wrote in a research note.

Janedis said he expected the Administrative Law Judge process that the Sinclair-Tribune deal is being referred to will likely push out past the August merger deadline, and that Sinclair probably won’t renew the deadline. But he said that Sinclair still has the financial flexibility to add additional assets.