Summary
The acquisition of Tribune by Sinclair only enhances the value of Sinclair; Sinclair is undervalued and does not need this deal to close to be an attractive investment.
Tribune’s trading price, however, is supported only by this deal closing. Buying or holding Tribune shares puts all your eggs in an FCC-controlled basket.
FCC Chairman Pai's concerns and recommendation for administrative review are to be expected.
Sinclair Broadcasting Group (NASDAQ:SBGI) represents an opportunity to purchase shares at a discount because of uncertainty associated with their proposed merger with Tribune Media (NYSE:TRCO). Our position is that the market is being inefficient in its pricing of the Sinclair stock. Because the Tribune merger would only enhance cash flows, its pending status should have a neutral or positive impact. However, the market appears to be discounting the in place value of Sinclair due to this uncertainty. Based upon our research, we believe that Sinclair’s in place free cash flows and strong financial position support a value up to 40% greater than it is trading at (see my previous Sinclair article).
