NBC Wants to Unload Pax

Nov 17, 2003  •  Post A Comment

It looks as if Lowell “Bud” Paxson’s dream of launching a new television network has died.
With NBC’s decision last week to unwind its 32 percent stake in Paxson Communications, Mr. Paxson’s plan to tap NBC’s programming has gone up in smoke, leaving the broadcaster with nothing but a huge debt load and a string of low-power television stations.
At first blush, NBC’s request that Paxson redeem the 41,500 preferred shares that NBC got in exchange for its $415 million investment in 1999 seems like a win-win for both companies: West Palm Beach, Fla.-based Paxson is able to search for either a strategic partner or buyer without NBC’s interference. And NBC gets a nice premium for its investment (the securities are worth around $549.2 million, including interest.
“This frees Paxson up because before, any buyer would be negotiating with NBC as well as with Paxson,” one media analyst said. “It would have been hard to do a deal.”
Paxson’s value is estimated at between $2.9 billion and $3.1 billion, according to investment banker BIA Financial.
Wall Street appeared to support that theory, pushing Paxson shares up 20 percent Thursday to $6. Yet upon closer look, NBC’s move effectively kills Mr. Paxson’s dream of turning his Pax network into a contender to the major broadcasters. Indeed, after much fanfare several years ago, with plans to launch a network that served up family-friendly fare, Pax is now home to mostly reruns. Daytime hours are dominated by infomercials-a move taken in January to help the debt-laden company cut programming costs. Another expense saver: staff cuts.
Mr. Paxso said during the company’s third-quarter earnings call that Paxson is on the hunt for original programming, but stressed that they would not throw lots of money at the effort.
Furthermore, his focus seems to be more on finding either a programming partner or selling some or all of the company’s 60 television stations. Mr. Paxson said he thought his chances to find a buyer or a partner would rise significantly once the Federal Communications Commission passed multicast must-carry rules this fall, something he is confident will happen. And since Paxson has completed its digital buildout at many of its stations, Mr. Paxton said the company is well positioned to take advantage the new rules.
Mr. Paxson said he has had discussions with programmers about renting out some of Paxson’s digital channels, providing what Mr. Paxson described as an opportunity to create four or five more networks. “We are a one-stop shop,” Mr. Paxson. “They are going to come to us first. Our company is in an excellent position because of reach.”
“Fundamentally, we are exiting not because we don’t like the assets, but because we are disappointed with management and their business plan,” said Brandon Burgess, NBC’s executive VP of business development. “There was no way to help them, because we were excluded from management.”
Even as the two companies sever ties, the battling continues. Paxson claims it has until Sept. 14, 2004, to decide whether to redeem NBC’s stake, and is well within its rights to turn the network down and let the investment contract expire as scheduled next September. NBC doesn’t see things that way and expects to get paid, even though Paxson has acknowledged it’s short on that kind of cash.
A Paxson spokeswoman declined comment, beyond issuing a press release, on NBC’s redemption request.