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NBCU a Hurdle in Paxson Sale

May 2, 2005  •  Post A Comment

As the number of parties interested in buying struggling broadcaster Paxson Communications grows, NBC Universal-and its ongoing fight with Paxson-looms ever larger as perhaps the toughest hurdle any buyer will have to surmount to complete a sale.

NBCU owns a 32 percent stake in Paxson and has the potential of wielding considerable power over the beleaguered company, thanks in large part to the control it was given in 1999 when then-NBC invested $415 million in Paxson. Extensive rights went to NBCU after NBC and Vivendi Universal Entertainment merged a year ago to form NBCU. According to documents filed by Paxson with the Securities and Exchange Commission, NBCU has the right to approve everything from annual budgets and programming acquisitions to material asset sales or purchases, including that of the company itself.

It’s a factor that is coming more into focus as an increasing number of would-be suitors line up to court Paxson and its 60 television stations, which cover 87 percent of U.S. TV households.

As of last week, three separate parties were expressing varying degrees of interest in Paxson, which for the past few years has struggled under a mountain of debt and a flailing programming strategy.

The most recent entrant is a consortium of operational and financial investors being shepherded by Bob Reichblum, a former “Good Morning America” executive producer and former VP of prime-time programming at CNBC. Mr. Reichblum described himself as a “catalyst” who has “met with a wide range of people representing a range of financial and investment institutions” in a bid to put together a deal.

While he declined to give specific names of people with whom he has met, Mr. Reichblum said the meetings have taken place with private-equity firms, banks and businesses that could leverage Paxson’s digital spectrum in nontraditional ways.

“We believe very strongly that [Paxson] is a very valuable asset base,” Mr. Reichblum said, adding that Paxson Chairman and CEO Lowell “Bud” Paxson “deserves great credit for building the footprint he has built, and deserves great credit for diligently keeping pace with his digital buildout.

“If you look at it fundamentally, [a business] has an asset base and an operating plan. If you had to tackle one of those two problems, it is certainly easier to tackle an operating plan and work that out than having to go through the expense of dealing with assets,” he said.

Mr. Reichblum’s team joins syndicated talk-show impresario Byron Allen and entertainment management company The Firm as potential buyers hot after Paxson because of its TV stations and their must-carry status in many markets. Sources familiar with the various players peg Paxson’s value at $2 billion to $2.5 billion.

A Paxson spokeswoman declined to comment, as did spokesmen from NBCU and The Firm. Mr. Allen did not return a call seeking comment.

While Mr. Reichblum, who also served as CEO of business-themed Web site WebFN, declined to provide many details of the strategy he and his team would use to improve Paxson’s performance, it appears clear that he supports the strategy shift that Paxson’s present management is undertaking to focus its energies more on paid programming as a way to generate cash and pay down debt that presently stands at just under $1 billion.

“In a general sense, from a purely [profit-and-loss] standpoint, it’s clear that Bud, or whoever, would be greatly challenged in programming their way out of their current problem,” Mr. Reichblum said. “If you look at NBC, which has all the resources, the best producers and best promotional tools, if they get one or two hits they have a great year. If you take those tools away from Paxson, the idea that you would be able to generate a hit or two is really challenging. So you have to look at it as positioning away from the current model.”

Yet what Mr. Reichblum has hailed as a sensible move on Paxson’s part is being pooh-poohed by NBCU officials and could prove a sticking point should any suitor supporting a move to paid programming emerge as the victor in a race for Paxson.

Last month NBCU officials issued a statement opposing Paxson’s plans to shift its lineup to feature more paid programming, and people familiar with the matter said NBCU is examining its legal options as a way to block Paxson’s adoption of the new programming strategy later this summer.

If such a lawsuit is filed, it would be the second front on which NBCU and Paxson are waging war. Already, both companies are awaiting a decision by a Delaware judge that could determine whether Paxson is on the hook for the more than $600 million that NBCU claims Paxson would need to buy out NBCU’s stake.