Sinclair shook up the media and broadcasting worlds this week by taking an 8.2 percent equity stake in E.W. Scripps. The $15.6 million in Scripps’ Class A common stock isn’t enough to raise eyebrows, except for the fact that it signals a clear intent to acquire the broadcaster, possibly in hostile style.
That intent is not only inferred from the sudden investment – and what such moves usually indicate – but also in Sinclair’s own words. In its 13D, filed on Monday with the SEC, the company stated that its open-market stock grab was made “in contemplation of a possible combination with the issuer.”
It doesn’t get any clearer than that. Sinclair also stated its timeline, with an estimate of 9-12 months for a transaction to be completed if an agreement is reached. It also notably remarked that it has already engaged in months of discussions with Scripps about “a potential combination of the two companies.”
That last part is where things start to get foggy. These claims of productive discussions with Scripps about an acquisition were then countered by Scripps leadership. For one thing, an internal memo to employees from CEO Adam Symson threw cold water on the possibility of a Sinclair takeover.
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Mixed Signals
In that memo, Symson stated that said discussions “did not lead to an agreement that would benefit our shareholders, employees, audiences and advertisers.” Instead, he claims that Scripps is engaged in discussions about “station sales, swaps, and other potential M&A options with many local broadcasters.”
If Symson’s attempts to downplay the deal are to deflect the possibility, it’s not too hard to guess why he’d do that. An upcoming sale could cause an internal stir (job security/redundancy concerns, senioritis, etc.), leading to performance or quality issues that jeopardize the sale or Scripps’ valuation in the deal.
Speaking of valuation, Scripps’ stock jumped 40 percent following Sinclair’s surprise stock purchase. This could directly impact employees who hold equity (if Scripps has employee stock purchasing plans in place). That could in turn send mixed signals to staff about how “real” Sinclair’s takeover could be.
Meanwhile, beyond internal memos, Scripps had similar things to say publicly. After Sinclair’s 13D was filed, Scripps responded with a statement that its board “will take all steps appropriate to protect the company and the company’s shareholders from the opportunistic actions of Sinclair or anyone else.”
300 Million Reasons
But what about Sinclair’s perspective? Why is it doing this? The company has stated that acquiring Scripps would unlock $300 million in synergies. There are several assets and combined firepower involved in that calculation, including what would be a net gain of 61 local TV stations in 41 markets.
Panning back to the macro environment, this move notably follows Nexstar’s $6.2 billion acquisition bid for rival broadcaster Tegna. This hunger for acquisitions in legacy media is emblematic of economic pressures and ongoing media fragmentation that challenge traditional broadcasters’ margins.
Fortunately for the Scripps and Nextars of the world, there’s an M&A-friendly FCC in place. Leaving out well-known political alignment between Sinclair and Brendan Carr’s FCC, the chairman has telegraphed the commission’s intent to pave the way for more consolidation in the U.S. broadcasting landscape.
Standing in the way are legacy regulations that prohibit broadcast groups from owning local stations that reach 39+ percent of U.S. households. The FCC is reviewing that measure, the outcome of which will make or break high-stakes moves underway – and maybe more to come – from Sinclair and Nexstar.
Header image credit: Norbert Braun on Unsplash
