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FCC foreigner rules could whack Fox

Restrictions on foreign ownership of U.S. TV stations could add roughly $127 million to the price Fox Television pays for Chris-Craft's 10 TV stations.

The FCC on Dec. 21 said the purchase by Fox Television Stations, which is ultimately owned by Australian-based parent News Corp. but under the control of naturalized U.S. citizen Rupert Murdoch, may violate the prohibition against foreigners holding TV licenses here.

If the agency refuses to go along with the transaction as now structured, Fox may have to increase the value of the cash/stock swap because of a significant tax hit Chris Craft shareholders would absorb. The purchase contract calls for Fox to increase the deal's per share value by $2 to $87-an increase of almost 2.5%.

The FCC is balking because the deal's current proposal calls for Fox Television to acquire Chris-Craft's TV licenses but put the rest of the assets, including the stations themselves, under the control of another News Corp. subsidiary.

The Fox station group, under a 1995 waiver from the FCC, is not barred by foreign ownership restrictions from acquiring more stations because regulators ruled that the stations were under the de facto control of Murdoch. But any future station purchases must be under the same ownership structure. The FCC's Mass Media Bureau is asking Fox to explain how the deal complies with the 1995 waiver.

The FCC also asked Fox to explain why the Chris-Craft deal, if not brought into compliance with the 1995 ownership structure, is in the public interest. Finally, the FCC asked for permission to review Fox documents submitted to the Justice Department team that is conduct as separate antitrust review of the merger. A Fox official said the FCC's inquiry was expected and predicted the company would alleviate regulators' concerns.

Aside from the foreign ownership issue, Fox also may be ordered to shed some stations to bring itself into compliance with the 35% cap on U.S. audience reach post-merger. Station sales are likely unless the incoming Republican FCC leadership lifts or removes the ownership cap.