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Allen Readying Deal to Buy Paxson for $2.2B

Apr 4, 2005  •  Post A Comment

Syndicated television show impresario Byron Allen is gearing up to put together a $2.2 billion deal to purchase Paxson Communications, the beleaguered broadcaster that confirmed late last week that it has decided to dump its strategy of airing rated content in favor long-form paid programming.

Though details of his offer are still fluid, Mr. Allen in an interview with TelevisionWeek said he has pegged the purchase price of Paxson at around $2.2 billion, and has had conversations with investment bank Credit Suisse First Boston about putting together a deal. He said he has also held talks with a number of private-equity firms and film studios.

He also has spoken with officials at NBC Universal, which holds a 32 percent stake in Paxson and is presently locked in a legal tussle over whether Paxson must pay NBCU to liquidate that stake.

“We are aggressively pursuing an acquisition of the network,” said Mr. Allen, the former co-host of the hit 1980s show “Real People” who is now chairman and CEO of Entertainment Studios. “This is an asset that has a great deal of unleashed value, and its current format does not maximize its potential.”

He noted that he thinks Paxson’s assets of 60 television stations should more than cover the company’s debt load of around $991 million as of Sept. 30.

Mr. Allen said that in addition to holding preliminary talks with CSFB and NBCU, he has lined up a $1 billion, five-year commitment from a company that produces infomercials, though he declined to name the company.

Sources familiar with the matter confirmed that Mr. Allen has met with officials at CSFB and NBCU, but they noted that CSFB has yet to be engaged by Mr. Allen. In addition, other sources said discussions between NBCU and Mr. Allen have not gotten very far.

A CSFB spokeswoman declined to comment.

An NBCU spokesman said: “We are not in discussions with Byron Allen regarding any business matters at this time. We are not entitled to speak for Paxson, and inquiries should be directed to the company. We continue to seek repayment in full of our convertible preferred debt position.”

Said Dean Goodman, president and chief operating officer of Paxson: “I think Byron Allen is a great talent and a creative entrepreneur. But we have no comment relative to his desire to buy the company.”

If Mr. Allen is successful at putting together a deal to buy Paxson, he said his first order of business will be to tweak the format of the network to target mainly black audiences in the 18 to 49 and 25 to 54 demographics, programming the network with comedies, dramas, movies and sports content he hopes to produce through his company, which has about 15 programs in syndication, including “Entertainers With Byron Allen,” “Kickin’ It With Byron Allen” and “Beautiful Homes & Great Estates.”

Relying on advertiser relationships he has with the syndicated programming he now produces, Mr. Allen said he thinks producing high-quality content geared toward black audiences will command premium prices from advertisers looking to reach that audience segment.

“Quality will be No. 1 on our agenda,” he said. “My position is I want you to find the next `Bernie Mac Show’ on this network, not Fox. The next `Chappelle’s Show’ on this network, not Comedy Central.”

Mr. Allen’s move to buy Paxson comes as the company’s free-fall appears to be accelerating. Paxson for years has found itself saddled with a heavy debt load and a programming strategy that has failed to connect with viewers. At the same time, it has been locked in a legal battle with NBCU over the fate of the media giant’s stake in the struggling broadcaster.

But in recent weeks things appear to have gotten worse. After 21/2 years, Paxson in early March dropped investment banks Bear, Stearns & Co. and Citigroup Global Markets as financial advisors hired to explore strategic alternatives, claiming “no viable strategic transactions had been developed on terms that we believed would be in the best interest of all of our shareholders.” While the company remains open to offers, it has shifted its focus to improving the core business and increasing cash flow.

Sources noted that Bear Stearns and Citigroup faced an uphill battle almost from the moment they were engaged because Paxson officials have long viewed their assets as worth more than potential suitors were willing to pay.

Then on Thursday the company confirmed in its annual report filed with the Securities and Exchange Commission that it is unwinding its 45 joint sales agreements with NBC and other station groups in preparation for a shift in programming strategy to one of paid programming.

To that end, Paxson said it has informed station groups with which it has JSA partnerships that it is terminating those alliances by June 30. In addition, Paxson said it informed NBC that it is removing its stations from a national sales agency agreement with NBC by the June 30 deadline.

“We intend that, by the beginning of July 2005, our local advertising sales efforts, including long-form paid programming and spot advertisements, will be handled directly by our own employees,” the company said in the SEC document.

Paxson also acknowledged in the filing that the programming alliance it struck last year with NBC to create new series for Paxson’s Pax TV network failed to bear fruit.

“To date, these new programs have not served to materially improve our audience ratings or advertising revenues,” the company said in its filing, adding that it is not investing “substantial additional amounts in new entertainment programming.”