Sinclair Tweaks Divestiture Plan in Allbritton deal

NEW YORK (The Deal) -- Sinclair Broadcast Group  (SBGI) announced Thursday it was revising plans for TV station divestitures necessary to win federal approval for its pending $985 million acquisition of the eight television stations owned by Allbritton Communications Co.

Sinclair's original plan faced a rough go before the Federal Communications Commission and the Department of Justice because of regulators' plans to rein in joint sales and shared services agreements, two types of local TV partnerships broadcasters use to get around FCC rules limiting their ability to operate more than one TV station in a market.

Because of the ongoing FCC effort to limit the practice, the main trade group for broadcasters on Thursday offered a compromise to the commission.

In the Allbritton deal, to comply with FCC local television ownership limits, Sinclair originally planned to sell stations in Charleston, S.C., Harrisburg, Pa., and Birmingham, Ala., but would continue to provide sales and other nonprogramming support services to the buyers. Sinclair intended to sell its Birmingham stations WABM and WTTO and Harrisburg CBS affiliate WHP-TV to Deerfield Media Licensee in order to buy Allbritton's ABC affiliates WBMA Birmingham and WHTM-TV Harrisburg.

In Charleston it wanted to sell WMMP-TV (affiliated with MyNetwork) to Howard Stirk Holdings in order to acquire Allbritton's ABC affiliate WCIV-TV. Sinclair would have entered either joint sales agreements or shared services agreements with the buyers.

Under joint sales agreements, or JSAs, one station sells the ad time of another station in the market. Shared services agreements, or SSAs, call for one station to manage the studio, technical and other back-office operations of the junior partner. Under either option the station receiving the outside help maintains control over the programming.

Sinclair also said it would discontinue providing services to WTAT, the FOX affiliate in Charleston and would transfer to the buyer of WHP the rights under an existing local marketing agreement to provide services to WLYH, the CW affiliate in Harrisburg. In each of the three markets, Sinclair is buying the ABC affiliate from Allbritton. Sinclair would retain ownership of WTTO, the CW affiliate in Birmingham

"The proposed changes to the transaction will have an immaterial impact on Sinclair as a whole and on the Allbritton transaction in particular," said David Smith, Sinclair's CEO. The stations to be sold were expected to contribute only about $21 million of pro forma Ebitda in 2014. Sinclair said it expects to realize full value for the stations in a sale.

In addition, shedding them will reduce the previously announced $21.5 million of operating synergies created in the Allbritton transaction by only $2 million, the company predicted

The new arrangements would still result in "significant upgrades" for Sinclair in each of the three markets, Smith added. The overall deal benefits Sinclair because of the acquired stations' affiliation with ABC and the 24-hour cable news channel in Washington, D.C., Sinclair is getting.

Smith also maintained that the JSAs and SSAs contemplated would have provided significant public interest benefits, such as promoting minority ownership of broadcast stations.

The FCC is moving aggressively to prevent broadcasters from using JSAs and SSAs to evade local TV station ownership limits. The FCC staff on March 12 issued guidance explaining how they will view acquisitions by TV station groups that rely on JSAs and SSAs to ensure that their deals do not violate the duopoly restriction. The move preceded a vote by the FCC commissioners scheduled for March 31 to put new limits on the arrangements.

The FCC prohibits ownership of two stations in a market unless at least eight stations are held by different owners there. That effectively bars TV duopolies in all but the largest markets.

In markets where duopolies are permitted, only one of the stations in the pair may be among the four top-rated.

Opponents of media consolidation have sought restrictions on JSAs and SSAs for years, arguing that broadcasters created a loophole allowing them to evade the intent of the FCC's local ownership limits.

Critics argue that the senior partner in the arrangements gains de facto control of the junior stations, including influence over programming.

Broadcasters have been waging a lobbying battle against the new restrictions, which have been pushed by FCC Chairman Tom Wheeler.

Thursday, however, they floated a compromise.

Under Wheeler's plan, any station owner that sells 15% or more of the advertising time in another owner's station through a JSA would have to count that station toward its tally of properties in that market and would forbid the creation of more JSAs that violate ownership rules and require that existing ones be terminated after two years.

The fate of SSAs will be subject to public comment but Wheeler's tentative conclusion would be to limit or eliminate them. He is considering granting waivers for existing JSAs that produce a threshold amount of local news and enable minority ownership.

The DOJ, which also must approve the Allbritton deal, has endorsed Wheeler's plan.

Under the compromise floated by National Association of Broadcasters president Gordon Smith, the agreements would continue to be permitted if the stations met specific criteria for ensuring that the station license holder truly controlled programming personnel and finances and demonstrating that the arrangements provided public interest benefits.

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