If you thought Tribune Media‘s now-imploded merger with Sinclair Broadcast Group was largely due to actions taken by Sinclair, you may want to look closely at what a private equity firm believes.
This entity, named the Arbitrage Event-Driven Fund, on Monday filed a class action complaint with an Illinois federal district court against Tribune. A jury trial is being demanded. The charge? Tribune executives cost investors millions of dollars for failing to disclose Sinclair’s ill-fated actions.
As the fund sees it, Tribune CEO Peter Kern, EVP/CFO Chandler Bigelow and EVP/General Counsel Edward Lazarus each failed to reveal to the investors that Sinclair had declined to honor a request by the FCC to divest certain television stations — a move Tribune has said would have cleared the transaction.
Instead, the $3.9 billion merger was terminated by Tribune, resulting in competing lawsuits alleging breach of contract.
For the Arbitrage Event-Driven Fund, managed by New York-based Water Island LLC, the lack of disclosure from Tribune’s three C-Suite executives cost investors some $564 million. This is particularly vexing to the Fund, as Kern and his colleagues are believed to have known since November 2017 about the problems associated with the Sinclair merger.
The Fund filed the complaint based on information gathered by its attorneys which included, among other things, a review of press releases and other public statements issued by Tribune Media, media and analyst reports about Tribune, publicly available information in Tribune Media Company v. Sinclair Broadcast Group, and other public information regarding Tribune.
Noting the statement made July 16, 2018, from FCC Chairman Ajit Pai in which he expressed “serious concerns” about the well-publicized merger. In particular, Chairman Pai stated that “certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law.”
The Fund asserts, “This signal that Sinclair was not agreeing to the regulatory requirements necessary to complete the merger – the station divestitures discussed frequently in Tribune’s public filings since May 2017 – caused Tribune stock to close down $6.44 per share (over 16%), costing investors more than $564 million in value.”
As such, the class action suit was filed in Illinois, based on “misrepresentations and omissions of material fact” made by Tribune in its public filings concerning Sinclair’s conduct during the regulatory approval process necessary to complete the merger.
The goal is to get the court to determine that the action is a proper class action under Rule 23 of the Federal Rules of Civil Procedure; to award compensatory damages; and to declare that a violation of Section 10(b) of the Exchange Act as well as Rule 10b-5 was done.
Representing the Fund as legal counsel are Entwistle & Cappucci LLP and Moirano Gorman Kenny LLC.
