Sources: Sinclair Considering Sale of Around 30% of its Broadcast Stations

Reports indicate that Sinclair Broadcast Group is contemplating the sale of roughly 30% of its broadcast stations. This potential divestiture reflects strategic reevaluation within the company and could have significant implications for the broadcasting landscape.

KEY POINTS

• Sinclair intends to offload over 30% of its portfolio comprising 185 owned or operated broadcast stations, as revealed by insiders.
• Moelis, an investment bank, has been engaged by Sinclair to evaluate potential asset sales, including the broadcast stations and the Tennis Channel.
• Settlement of litigation with subsidiary Diamond Sports Group, owner of major regional sports networks, occurred recently amidst its bankruptcy protection.
• Sinclair underwent restructuring last year, establishing two distinct operating units: the broadcast business and Sinclair Ventures, encompassing non-media assets.

According to insiders, Sinclair, a major proprietor of broadcast stations in the United States, is considering selling over 30% of its holdings. The company has enlisted Moelis as its investment advisor and has pinpointed more than 60 stations across different U.S. regions for potential sale. These sources, preferring anonymity due to the confidentiality of the talks, disclosed that Sinclair currently possesses or manages 185 TV stations spread across 86 markets.

The stations encompass a variety of affiliates, such as Fox, NBC, ABC, CBS, and the CW. If sold collectively, their average revenue for 2023 and 2024 is projected at around $1.56 billion, according to insiders. Sinclair is prepared to divest either all or a portion of these stations, which are situated in prominent markets like Minneapolis, Portland (Oregon), Pittsburgh, Austin (Texas), and Fresno (California), among others.

Sinclair CEO Chris Ripley indicated on Wednesday a willingness to divest segments of the company's business, although specific details were not disclosed.

During his company's earnings conference call, Ripley emphasized, "We have no acred cows." He expressed a desire to enhance the company's valuation, which he believes is currently undervalued. Asset sales could play a role in achieving this and aiding in reducing debt. The process of selling these stations commenced officially in February, according to one insider. Representatives for Sinclair and Moelis declined to provide comments.

Sinclair is additionally considering strategies for its Tennis Channel, a cable TV network showcasing both tennis and pickleball matches, as disclosed by insiders. Bloomberg previously reported this development.

Over the last five years, broadcast TV station groups have faced challenges, with many Americans opting out of traditional pay TV subscriptions. These stations typically generate revenue from retransmission fees, paid by traditional TV distributors like Comcast, DirecTV, and Charter, based on a per-subscriber rate for carrying the stations.

Over the past five years, Sinclair has experienced a significant decline in market value, with a decrease of over 70%. Presently, the company's market capitalization stands at approximately $975 million, while its enterprise value is estimated at around $4.7 billion.

Sinclair changes

In the preceding year, Sinclair underwent rebranding and restructuring, dividing the company into two distinct operating units: Local Media, concentrating on the stations, and Ventures, which not only oversees the Tennis Channel but also functions as an investment platform.

According to sources, this division within the company's operations, along with the ongoing sale process of certain stations, reflects internal discord within the Smith family, shareholders, and board directors who have been instrumental in Sinclair's growth and development.

The decision to sell the stations comes at a significant time, just months ahead of the 2024 election, typically a period of heightened political advertising revenue for broadcast TV firms. Sinclair disclosed during its earnings call on Wednesday that it had pre-booked $77 million in political advertising for the latter half of the year leading up to Election Day. This figure stands in stark contrast to the $21 million pre-booked at the equivalent stage in 2020, during the last presidential election featuring former President Donald Trump and President Joe Biden.

During the first quarter, Sinclair experienced modest increases in both overall revenue and advertising revenue. This positive performance was reflected in a 12% rise in Sinclair's stock value on Thursday.

Sinclair's broadcast stations have garnered attention for their conservative editorial stance. In 2018, the company attracted criticism for mandating certain stations to air promos condemning the media for "fake stories," resulting in significant backlash.

In the first quarter, Sinclair saw marginal increases in both overall revenue and advertising revenue. This positive financial performance was reflected in a 12% surge in Sinclair's stock value on Thursday.

Sinclair's broadcast stations are recognized for their conservative editorial stance. In 2018, the company encountered criticism for compelling certain stations to broadcast promos denouncing the media for "fake stories," sparking widespread backlash.

Diamond woes

The current divestiture process follows challenges Sinclair encountered in its regional sports networks venture.

In 2019, Sinclair acquired the largest set of regional sports networks from Disney for $10.6 billion, with $8.8 billion in debt. However, factors such as increased cord-cutting and substantial debt burden led to Diamond Sports, an independently operated subsidiary of Sinclair, filing for bankruptcy protection last year.

Subsequently, Diamond initiated legal action against parent company Sinclair, which was resolved in January. Sinclair made a $495 million payment to settle lawsuits associated with Diamond.

Source: cnbc‍