Stephens Upgrades Tribune, Says Sinclair Deal Will Close In Its Current Form

Tribune Company TRCO plunged 15 percent Monday after the chair of the Federal Communications Commission expressed “serious concerns” about its buyout by Sinclair Broadcast Group Inc SBGI and weighed an administrative trial.

For one analyst, the regulatory risk only increased the certainty of a Sinclair-Tribune merger.

The Rating

Stephens analyst Kyle Evans upgraded Tribune to Overweight, but cut his price target from $45 to $41.

The Thesis

Evans dismissed regulator concerns that Sinclair’s sidecar deals involved misconduct or deception.

“We believe the public threat of a Hearing Designation Order from the FCC was a very effective means of negotiating with SBGI, and that SBGI’s public response was the only sensible way forward,” he wrote in a note.

The analyst predicts the FCC will permit remedies for divestiture concerns; Sinclair will comply with all FCC requirements and find new, open-market buyers as directed; and, at the end of it all, the merger will remain the superior outcome for both Tribune and Sinclair.

“We believe SBGI remains the best buyer of TRCO’s assets given SBGI’s intense focus on scale, its leading role in ATSC 3.0 as an emergent business model and its apparent willingness to engage regulators,” he wrote. “We believe TRCO would have limited options finding another buyer given its heavy FOX and CW exposure.”

Stephens expects the parties to extend their deal deadline past Aug. 8 and close the transaction in its current form.

Price Action

Tribune was trading around $33.79 late Tuesday morning, up more than 5 percent on the day.

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