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NEW YORK (Reuters Breakingviews) - A new TV deal is stirring some bad memories of the Murdoch entertainment empire. Just a few months ago, Twenty-First Century Fox Chief Executive James Murdoch denied any interest in buying more U.S. TV stations and told investors to “rest easy” about the idea. Now it’s looking at a possible deal for $6 billion Tribune Media in partnership with private-equity firm Blackstone.
Murdoch didn’t leave much room for interpretation during a February conference call following the release of Fox's quarterly finances. When asked about the potential for acquiring local broadcasters in the context of potentially relaxed Federal Communications Commission regulations, he said: “No I guess is the most straightforward way to answer the question.”
There seems to be a change of heart. Fox, which is controlled by the Murdoch family using a feudal shareholder structure, is teaming up with Blackstone to run the numbers on Tribune and its 42 stations. The buyout shop led by Steve Schwarzman would provide the cash and Fox would contribute its 28 stations, a person familiar with the matter told Breakingviews.
Last month, the FCC indeed made it easier for companies to grow without breaching restrictions on their coverage areas. That made Tribune a more tempting target. Sinclair Broadcast and Nexstar are also eyeing the Chicago-based group, which portends a bidding war. Its shares jumped 6 percent on Monday morning.
With Blackstone involved, Fox might be able to expand without straining its balance sheet any further. At the same time, Murdoch is waiting to see if Fox passes Britain's "fit and proper" test before it can buy the rest of European satellite group Sky for $14.5 billion. If that deal goes through, Fox's debt will increase to about four times EBITDA.
Surprising shareholders with grander M&A plans amid a touchy acquisition of Sky, which faltered once before, and scandals at its all-important Fox News operation, is evocative of another era, however. Fox Chairman Rupert Murdoch, James' father, was known for capricious and overpriced deals, including MySpace and Wall Street Journal parent Dow Jones, until then-right-hand man Chase Carey helped usher a more disciplined use of capital in 2011. The Tribune reversal risks a throwback to the company's erratic ways.