Tribune Co. (TRCO - Get Report) shares were up sharply following a federal court ruling Thursday that greatly improves chances that the broadcast chain's suitor, Sinclair Broadcast Group Inc. (SBGI - Get Report) , would be allowed to go through with their planned merger.
Sinclair shares rose $1.30, or 3.73%, Thursday to close at $36.15. Tribune shares rose to $41.12, a spike of $2.08 or 5.33%.
The U.S. Court of Appeals for the D.C. Circuit denied a motion for an emergency stay filed by public interest groups, including the National Hispanic Media Coalition, Free Press, Common Cause, Media Alliance and United Church of Christ, that sought to prevent the Federal Communications Commission from reinstating the so-called "UHF discount."
The discount allows UHF stations, those broadcasting above channels 14, to count less toward the cap on one TV station group's permissible national reach. Current law limits an owner from reaching more than 39% of the country's TV homes. The discount, imposed before the rise of cable delivery and the switch to digital transmission, was meant to account for what was once the inferiority of UHF signals and tallies only half of a UHF station's household reach toward the cap.
The groups fighting the discount's reinstatement say the move will allow the nation's largest television ownership, including Sinclair, to acquire additional stations, and crowd out diverse and local voices.
In April, the FCC, led by newly installed Republican Chairman Ajit Pai, reversed a decision by Obama-era FCC Chairman Tom Wheeler, to eliminate the discount.
The appeals court's ruling denies the opponents' request for an emergency stay of reinstatement but the permanent status of the discount will be decided in a court case later this year.
In the wake of the FCC's decision to reinstate the discount, Sinclair on May 8 announced plans to purchase Tribune's TV stations for $3.9 billion. The deal would create a broadcast colossus with more than 200 TV stations, and would result in Sinclair reaching more than 70% of the national audience with stations in large cities such as New York, Los Angeles, Chicago and Dallas. But because of the UHF discount, Sinclair still would be in compliance with the 39% cap.
While UHF signals were inferior to VHF in the analog era, the opposite is true for today's digital television transmission. With that in mind, Sinclair and other broadcasters have moved legacy VHF stations to UHF channels at the encouragement of the FCC, which has been reclaiming the vacated channels and auctioning them to wireless operators.
Andrew Schwartzman, senior counselor at Georgetown University's Institute for Public Representation and one of the lawyers who represented the groups fighting reinstatement, said that the FCC's realignment of the broadcast and wireless spectrum has made the UHF discount "an even bigger loophole than it was before" the switch to digital TV.
"Nobody disputes that the discount is obsolete and that there isn't any policy justification for it," Schwartzman said.
For its part, Pai has said the discount should be reinstated until the FCC completes a reassessment of all its broadcast ownership rules.
In a prepared statement Sinclair said: "We are pleased that the court denied the motion for an emergency stay of a rule that had been in effect for decades. We remain confident that the court will conclude on the merits that the UHF discount should remain in place until a thorough review of the current ownership rules is completed."
Opponents of the discount took the opposite view. "The Court of Appeals' decision to allow the reinstatement of the UHF discount makes it easier for huge ownership groups to take over the media market, at the expense of Latinos, media owners of color and local voices that seek to serve their diverse communities," said Carmen Scurato, director of policy and legal affairs at the National Hispanic Media Coalition. "The DC Court has cleared the way for massive consolidation, negatively impacting the thousands of owners and consumers that this appeal represented. The FCC has a mandate to act in the public interest yet by reinstating the UHF discount, Chairman Pai has signaled that he is on the side of big media conglomerates that want more control of what we see and hear on the airwaves."
In a conversation with The Deal, Scurato added,"This is far from over. Today's ruling is a bump in the road for us," she said. "The court hasn't ruled on the merits of our legal argument."
She added, "We have a good case. With media consolidation, we have the numbers on our side. When you look at the business's diversity, the numbers are dismally low. The FCC has an obligation to the public interest and they are the ones who can promote diversity. The courts have told the FCC they need to address it and not and even a Republican FCC can dismiss that."
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