Sinclair has been looking for an acquisition target for nearly a year.

The company announced in August it was launching a strategic review with an eye toward merging its broadcast station business with a peer. By that point Sinclair and its advisors had already held discussions with potential merger partners, CNBC previously reported.

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One of those targets wasGray Mediaaccording to people familiar with the matter, who spoke on the condition of anonymity about internal plans. But the conversations with Gray haven’t advanced, the people said, as Gray is already awaiting government approval for a much smaller deal and isn’t in a rush to explore another transaction.

Sinclair then set its sights on Scripps, the owner of than 60 stations and a variety of entertainment channels like Ion and Bounce. Deal discussions started in the last year, according to people familiar with the matter.

Initial talks revolved around creating a company where both the Scripps family and the Smith family, which owns the majority of Sinclair’s voting shares, would give up majority control of a combined company but remain involved, according to people familiar with the matter.

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Those early talks included developing an independent board that would be in charge of making pivotal business decisions, such as whether and when to preempt national programming. In September, Sinclair and Nexstar both preempted episodes of “Jimmy Kimmel Live!” after the late night host made controversial comments following the assassination of conservative activist Charlie Kirk.

Throughout the Scripps deal discussions, Sinclair proposed three different variations of a transaction, including different stipulations of who would remain as CEO and whether the deal would be structured as a merger or an acquisition, said the people familiar.

The Scripps family ultimately balked, in part due to governance issues and cultural concerns, two of the people said. In particular, Sinclair’s controlling family is known for its conservative politics. In 2018 Sinclair made all of its owned stations air so-called “must-runs” — commentary that sometimes echoed viewpoints of then-and-now-U.S.

President Donald Trump. That same year, Sinclair’s attempt to to acquire Tribune ultimately failed amid both Federal Communications Commission concerns and criticism by Democrats and public advocacy groups over whether the merger was in the public interest.

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“I think there’s a lot of complexity to any transaction, especially transactions that involve family-controlled public companies with highly levered balance sheets,” Scripps Chief Financial Officer Jason Combs said during Wells Fargo’s TMT Summit in November. “I think they’d add some complexity around a variety of issues, whether it’s economic splits, whether it is impacts to the capital structure and potential there, whether it’s governance issues. There’s a whole range of issues.”

When discussions went quiet in September, Sinclair began buying Scripps shares weekly until its stake amounted to roughly 8% and it had to go public, per the Securities and Exchange Commission. Currently, Sinclair has a 9.9% stake in Scripps. Sinclair publicly announced last month it would pursue a hostile transaction of Scripps.

In the days following Sinclair’s public proposal to acquire Scripps for $7 per share — or than $580 million — Scripps adopted a shareholder rights’ plan, commonly known as a “poison pill,” to give it time to consider the offer.

“We believe the strategic and financial rationale of a potential Sinclair-Scripps combination is indisputable,” Sinclair said in a statement last week. “Given the family control of Scripps, the only effect of adopting a poison pill is to limit the liquidity opportunities for public shareholders of Scripps.”

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A Scripps spokesperson on Wednesday said the company adopted the poison pill “to ensure that all shareholders receive full value in connection with any proposal to acquire the company.” The plan is intended to ward off “coercive tactics” and expires after a year, the spokesperson said.

There could be an additional layer of complication, too.

After Sinclair’s SEC filing that disclosed it had amassed a stake in Scripps, attorneys for Scripps sent a letter to Sinclair raising questions around the stock purchases, according to two of the people familiar with the matter.

As part of early deal discussions, Sinclair and Scripps signed a nondisclosure agreement and Sinclair received nonpublic information, the letter noted, according to the people.

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When Sinclair stopped receiving nonpublic information remains unclear, as do specific details of the nondisclosure agreement. That leaves open for interpretation whether Sinclair’s recent maneuver is a securities violation, according to attorney Jonathan Hochman, founding partner of Schindler Cohen & Hochman.

“Assuming Sinclair received confidential information from Scripps under an NDA, whether any of that information was material and not stale is interesting, because, if so, buying Scripps stock while in possession of that information sounds a lot like insider trading,” said Hochman, who is not involved in the Sinclair-Scripps matter.

Representatives for Sinclair and Scripps declined to comment.

Beyond complex deal structures and family ownership dynamics, the biggest hurdle for broadcast station mergers at large is U.S. law.

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The FCC currently prevents any one company from owning broadcast stations that reach than 39% of the U.S. TV households.

That threshold doesn’t threaten a potential Sinclair-Scripps merger — which Sinclair has said would easily win regulatory approval — but it puts Nexstar’s proposed acquisition of Tegna at risk. In order to go through, Nexstar’s deal would require the lifting of the decades-old FCC rule, or at least significant waivers.

“We are focused on achieving deregulation, and we continue to advocate for the elimination of the antiquated constraints on local television ownership as the best solution to level the competitive playing field for all media,” Nexstar CEO Perry Sook said in a November release when requesting approval for the Tegna deal.

In addition to the 39% nationwide cap, broadcasters would also like to eliminate another law on the books that prevents one company from owning three or ABC, CBS, Fox or NBC affiliates in a given media market.

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FCC Chairman Brendan Carr has been vocal about his support for reforming the laws. In one instance earlier this year, Carr reportedly called the ownership cap “arcane, artificial limits,” adding that such rules don’t “apply to Big Tech.”

In late September the FCC said it would review the ownership rules. But the changes have yet to take place, and the opposition’s voice is getting louder.

In addition, the Department of Justice has also been slow moving toward approving deals in the industry, creating a hurdle for deals of all sizes, one of the people said.

Trump recently slammed the proposed consolidation of the industry in a Truth Social post. Meanwhile, Chris Ruddy, CEO of conservative cable TV channelNewsmaxand a Trump supporter, is against FCC rules changes, arguing consolidation limits the number of potential voices and raises cable prices for Americans by giving leverage to the affiliate groups.

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A representative for Carr didn’t respond to requests for comment.

The argument against these mergers from the pay-TV distributors is that higher fees get passed down to consumers, which would likely amplify the hemorrhaging of traditional bundle customers. They also say it’s unclear how consolidation of these companies would help the local news industry, as the station owners argue.

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“Sinclair is brazenly seeking a mega-footprint nationwide and in local markets across the country, which will allow them to impose even exorbitant retransmission consent fees. These higher prices will leave consumers with a painful choice—pay up or lose your programming,” said Grant Spellmeyer, president and CEO of America’s Communications Association, an advocacy group for distributors, in a statement.

Curtis LeGeyt, President and CEO of the National Association of Broadcastersthe industry’s trade association, said in a statement to CNBC that local broadcasters are “not asking for special treatment; we are asking for the ability to compete in today’s media landscape.”

“Lifting the arbitrary 39% limit, which applies only to broadcast stations, will allow station groups to invest in local journalism, sports rights and the technology that keeps communities informed during emergencies, especially in smaller markets,” he said. “The national cap was imposed during an era before broadband and streaming reshaped how Americans get their news, and the longer Washington delays addressing it, the harder it becomes for local stations to sustain the trusted local news and reporting that Americans rely on every day.”

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC. Versant would become the new parent company of CNBC upon Comcast’s planned spinoff of Versant.

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