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NEW YORK (Reuters Breakingviews) - Sinclair's $3.9 billion deal for Tribune Media is putting Fox in a hole. The U.S. broadcaster is paying a 26 percent premium for its rival after the Trump administration relaxed a wave of regulations. Tribune gives Sinclair more heft to mount a challenge to Rupert Murdoch’s Fox News. But it’s going to cost the buyer more than just the headline price tag.
With the addition of Tribune’s 42 TV stations, Sinclair will cover more than 70 percent of households in the United States. That will transform it into the largest local broadcast owner by far. Regulators, though, may require Sinclair to sell some stations to clear the deal.
The Baltimore-based media firm outlined a host of advantages they expect Tribune to bring to the table. That includes collecting more fees paid by cable and satellite distributors to Sinclair to carry local TV. Yet executives refused to disclose what cost savings they have identified.
To justify the $800 million premium Sinclair is paying, Chief Executive Chris Ripley needs to trim annual expenses by around $120 million before tax, assuming a 30 percent levy and capitalized on a multiple of 10. At some 8 percent of Tribune’s total expenses last year, that ought to be pretty manageable. For example, Gannett – now Tegna - which is famous for wielding the knife, targeted 36 percent of Belo’s costs when it bought the TV-station group in 2013.
Ripley’s decision to hit the mute button on expenses, though, spooked investors, who at one point wiped almost 5 percent off Sinclair’s value, before allowing it to recover some.
Longer term, the big question is whether Ripley is launching a ratings war with Twenty-First Century Fox. Murdoch’s media conglomerate is currently embroiled in a series of sexual-harassment scandals that have beset its U.S. news network, which has a conservative-leaning viewership.
That could give Sinclair an advantage. The broadcaster already has a good relationship with the administration of President Donald Trump; his adviser and son-in-law Jared Kushner even said the Trump campaign struck a deal with Sinclair for better coverage, according to Politico, which the company has denied.
Sinclair will soon have the broadcasting muscle to compete with Fox, whose parent considered a bid for Tribune. Ripley also has a few former Fox stars he may woo, including those who left under a cloud – not least Bill O’Reilly. Such ambitions, though, will not come cheap.