Pact Gives Paxson Options

Nov 14, 2005  •  Post A Comment

Now that Paxson Communications has reached a truce with NBC Universal, sources say Paxson is likely to explore strategic alternatives that might defy conventional wisdom.

With a national footprint that includes 60 television stations and the ability to cover more than 80 percent of the United States with its cable and satellite relationships, Paxson might draw suitors that go beyond traditional programmers to possibly include technology companies, according to sources familiar with the company.

Indeed, Paxson officials believe the company’s national coverage, combined with the fact that most of its stations have been converted to transmit digital broadcast signals, could be a major selling point for software companies, hardware manufacturers and broadband players looking to bolster their video efforts. At the same time, there are other potential buyers who believe opportunities exist for Paxson to capitalize on the broadcast industry’s push toward an emphasis on localism by developing local content that could be broadcast on Paxson stations.

To be sure, many of the ideas being floated as ways to use Paxson’s assets are not new. Company founder Lowell “Bud” Paxson has said on many occasions that his company’s vast collection of stations and their digital signals provide opportunities for all sorts of companies to partner with Paxson. However, it is only since Paxson settled its stalemate with NBC Universal earlier this month that Wall Street seems convinced these strategies might work.

Part of the reason lies in the removal of two hurdles that many have seen as barriers to Paxson having any chance of survival: the battle with NBCU, and Mr. Paxson himself. Both were removed last week when NBCU and Paxson reached a settlement under which NBCU has 18 months to purchase Paxson or find a buyer or strategic partner for the company.

As part of the settlement Mr. Paxson agreed to step down as chairman and CEO. Paxson board member Lawrence Patrick replaced Mr. Paxson as chairman, while the CEO role was filled by Brandon Burgess, NBCU executive VP of international channels and business development, who resigned from NBCU to take the Paxson post.

The announcements sent Paxson shares soaring last week by more than 140 percent to trade at more than $1 a share for the first time since April.

Paxson’s agreement with NBCU settles a years-long battle between the companies over the fate of a 32 percent stake in Paxson that NBCU owned and wanted to sell. The legal tussle centered on whether Paxson was on the hook to pay NBCU to buy back the stake. NBCU said Paxson was obliged to pay, but Paxson disagreed. After several attempts to reach an agreement failed, the two sides turned to both an arbitrator and a Delaware court to help settle the matter.

Even though Mr. Paxson had put out a “for sale” sign, Wall Street analysts and potential buyers had long complained that the company’s asking price was far too high. Today most observers peg the company’s total value at around $2 billion.

According to sources familiar with the matter, after talks remained at a standstill for months, executives from both sides reached out to each other over the summer and began a new set of negotiations that culminated in last week’s agreement.

“There has been a collaborative effort at an operating level throughout all these years, notwithstanding what happened between our lawyers and certain corporate individuals,” said Dean Goodman, Paxson’s president and chief operating officer, who received a new three-year contract as part of the agreement.

It’s too early to tell exactly what sort of suitors the company might attract or pursue, but Mr. Burgess said Paxson has a lot of attributes that could generate interest from a broad array of parties.

“I am really fascinated thinking through the multicast model,” Mr. Burgess said in an interview with TelevisionWeek. “The stations are almost fully built out, and basically Paxson has a technological infrastructure to put out four to five feeds. This gets things interesting.”

Paxson officials said the company’s recently launched programming strategy, dubbed “i” to represent the embracing of independent producers and programmers by Paxson’s national network, is an ideal framework with which to have conversations with companies outside conventional broadcasting.

One thing that is not likely to happen, Mr. Burgess said, is a renewal of programming ties to NBC, which Paxson tried more than a year ago. “We are going to be pretty independent,” he said.