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Ruling drives Paxson action

Co. eyes backers to buy out NBC stake

NEW YORK — Paxson Communications hired investment bank Bear Stearns to evaluate strategic options, including a sale or merger, after an arbitration judge Monday ruled NBC can’t be forced to sell its minority stake.

Paxson had sued NBC for breach of contract, claiming NBC’s acquisition of Telemundo earlier this year would disrupt terms of the Peacock’s 1999 investment in Paxson, which carried a path to full control by NBC. Current FCC rules prohibit full control by NBC if it also owns the Telemundo stations.

Paxson wanted the right to exercise a “call” forcing NBC to sell its 32% stake immediately — even though NBC wouldn’t be required to do so until September 2004 under the original contract just upheld by the arbitration judge.

The ownership uncertainty stemming from the judge’s ruling pushed Paxson Communications shares down nearly 8% Monday to $2.46.

NBC can’t buy the rest of Paxson unless and until the FCC relaxes rules on station ownership. The rules are being scrutinized now and may change. If so, NBC indicated in a statement Monday it would still consider buying Paxson.

“We are gratified by the judge’s decision,” the statement said. “Our option to acquire control of Paxson lasts until 2009. Meanwhile, it is business as usual. We remain hopeful that the FCC ownership restrictions, which have been an obstacle to NBC’s ability to acquire control of Paxson, will be eased in the near future.”

‘Put’ that in your pipe

Paxson is doubtful. It has started looking for buyers or investors it needs to pay NBC the $500 million-plus pricetag to buy back the stake. Alone, Paxson couldn’t buy the stake even if NBC wanted to sell it. NBC, for its part, can exercise a “put” option forcing Paxson to buy the stake starting this month.

“We’re disappointed in the outcome of the arbitration, which finds that our relationship with NBC will remain status quo,” said Paxson chairman Lowell “Bud” Paxson. Under current FCC regs “and the terms of the current investment agreements, NBC cannot move forward with its acquisition of control of our company,” he added.

Currently, one owner can’t control stations reaching more than 35% of TV viewers. NBC and Paxson would hit 47%, a spokesman said.

Paxson’s argument to the judge was rooted in the fact that a combined NBC and Telemundo would boast a number of duopolies, or two stations in the same market. Adding Paxson would create “triopolies,” currently forbidden by the FCC.

Paxson said NBC would have to unload so many stations to comply with regs that it would never cut a deal.

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