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Fox’s talks with Ion could pave way for dump of Sinclair as partner

Sinclair Broadcast Group building in Hunt Valley. (File photo)

Sinclair Broadcast Group building in Hunt Valley. (File photo)

21st Century Fox Inc. is in talks to operate local television stations across the U.S. with Ion Media Networks Inc., potentially paving the way for Fox to dump Sinclair Broadcast Group Inc. as an affiliate partner, a person familiar with the situation said.

Closely held Ion would contribute its more than 60 independent stations to the joint venture, while Fox would throw in its 28 local stations, which include big markets such as New York and Los Angeles. As part of the deal, Fox would consider switching its affiliation to Ion from Sinclair for 26 stations that are up for renewal this year, said the person, who asked not to be identified.

Fox may also seek to switch 14 stations owned by Tribune Media Co., which is being acquired by Sinclair, upon the change of control, the person said. By doing the deal as a joint venture, Fox could also retain some control over TV stations without having to include the slow-growing local-broadcast business in its financial statements.

While such a move would hurt Sinclair, RBC Capital Markets analysts Leo Kulp and Steven Cahall said there’s also reason to believe it may be a “negotiating ploy” by Fox. Sinclair, based in Hunt Valley, Maryland, didn’t respond to a request for comment outside of normal business hours, while Chicago-based Tribune declined to comment.

“Based on what we know, we believe it’s too early to become overly negative on this,” the analysts wrote in a note to clients. “Although we will watch the situation, as it could be a meaningful negative.”

Sinclair shares tumbled as much as 9 percent, while Fox inched up 0.2 percent as of 9:51 a.m. in New York trading. Tribune fell as much as 3.9 percent, the most in almost seven months.

Many TV stations around the country are owned independently of major broadcast networks like Fox, yet carry their programming under affiliation agreements. Ion, which emerged from bankruptcy in late 2009, doesn’t currently have affiliation deals, instead relying on syndicated reruns and some original shows to fill its programming grid.

Fox, controlled by billionaire Rupert Murdoch, has been concerned about Sinclair’s $3.9 billion acquisition of Tribune, which is awaiting regulatory approval. The combined company, with 233 stations, will have even greater negotiating leverage on how to split fees paid by cable providers. Sinclair has also been creating more of its own programming, including conservative commentary, that competes with Fox’s own shows.

Unlike Sinclair, Ion doesn’t have significant local news operations. That could be a challenge if Fox chooses to switch to Ion stations, since many viewers still tune in nightly expecting to get their news and weather reports.

Fox had considered teaming up with Blackstone Group LP to create a rival bid for Tribune, contributing Fox’s TV stations to a joint venture, but the idea was scrapped.

The negotiations between Fox and Ion are still in progress and a deal isn’t certain.

The potential combination of TV-station owners like Sinclair, Tribune and Fox was made easier this year by the Federal Communications Commission. The agency restored a rule that eases limits on how much of the country can be covered by one station owner.