By Jessica Toonkel and Liana B. Baker
(Reuters) - Sinclair Broadcast Group Inc has approached rival U.S. broadcaster Tribune Media Co to discuss a potential combination, people familiar with the matter said on Wednesday, a deal that would hinge on existing regulations being relaxed.
A deal between Sinclair and Tribune Media, which have market capitalizations of $3.8 billion and $3.3 billion respectively, would combine two of the largest U.S. local TV station owners and face regulatory curbs on how many households they can reach.
Analysts have said the broadcast industry hopes President Donald Trump will lift caps on ownership concentration, allowing it to compete for audiences and advertising dollars against Facebook Inc and Alphabet Inc's Google.
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Tribune Media declined to comment while Sinclair did not respond to a request for comment.
Tribune Media's stock jumped as much 16 percent on the news and was trading up about 7 percent at midday on Wednesday in New York at $36.91. Sinclair's stock hit a record high of $42.40, up more than 6 percent, before easing to $41.50 around midday.
The discussions between the companies are preliminary and there is no certainty they will lead to any deal, the sources said.
Tribune Media is comprised of 42 owned or operated broadcast stations, as well as cable network WGN America, Tribune Studios and WGN-Radio. Sinclair owns, operates or provides services to 173 television stations in 81 markets.
If the companies decide to combine, they would collectively reach more people than the U.S. Federal Communications Commission (FCC) currently allows. Unless grandfathered in, no broadcast group is allowed to reach more than 39 percent of U.S. households.
In the past, Congress has increased the cap. Sinclair and Tribune also could seek a waiver to go above the cap as part of a deal, the sources said.
Tribune already is above the FCC cap, reaching 44 percent of U.S. households, while Sinclair is at 38 percent, according to Jefferies LLC analyst John Janedis.
Sinclair also could look at buying parts of Tribune, such as the dozen CW broadcast stations it owns, or its media holdings such as the WGN America cable network and its stake in the Food Network, the people added.
The sources asked not to be identified because the matter is confidential.
Tribune's chief executive, Peter Liguori, has said he is stepping down this month and the company has yet to name a permanent replacement. In February, Starboard Value LP, an activist hedge fund known for calling on companies to change their strategy, disclosed a 6.6 percent stake in the company.
Sinclair branched out into cable networks last year when it bought the Tennis Channel for $350 million.
Tribune Media said last year it was working withfinancial advisers Moelis & Co and Guggenheim Securities on a strategic review. It subsequently sold its media data unit Gracenote to Nielsen Holdings Plc for $560 million.
Tribune on Wednesday morning reported fourth-quarter earnings and revenues that missed most analysts' estimates.
On the earnings call, Tribune executives did not address any potential deal but said the company is "always looking at what we do with our portfolio to maximize shareholder value."
(Reporting By Jessica Toonkel in New York and Liana B. Baker in San Francisco; Additional reporting from Anya Tharakan in Bangalore; Editing by Stephen Coates and Bill Trott)