Paxson Attacks NBC's Telemundo Deal

Paxson Communications Corp. is trying to derail NBC's purchase of Telemundo Communications Group Inc., charging the deal would effectively put the kibosh on the Peacock's plans to eventually acquire Paxson.

Paxson — likening itself to a jilted woman with a cheating husband — last week initiated binding arbitration against NBC, which in September 1999 entered into a partnership to acquire 32 percent of Pax TV's parent for $415 million. (NBC is owned by General Electric Corp.)

Paxson also filed two petitions with the Federal Communications Commission over the matter, one of which asked the agency to turn down NBC's $2.7 billion proposed purchase of Hispanic broadcaster Telemundo's TV stations.

During a conference call last week, Paxson CEO Jeff Sagansky maintained that NBC is violating its partnership with Paxson, which he claims was meant to consummate with NBC acquiring all of the company.

NBC's proposed purchase of Telemundo would thwart that end by creating regulatory hurdles, Sagansky charged.

During the phone press conference, Paxson chairman Lowell "Bud" Paxson offered up the "jilted" wife analogy, adding that if his company can't resolve its differences with NBC, it wants to be freed to pursue opportunities with other strategic partners.

Paxson claims that its problem is that if NBC does buy Telemundo, and then tries to acquire all of Paxson, NBC would effectively have "triopolies" in five top markets —three TV stations each in New York, Miami, Los Angeles, Chicago and Dallas. That would violate current federal ownership caps.

Paxson, represented by high-profile lawyer David Boies, contends it would then be forced to divest its stations in those major markets, which would bore holes in the Pax TV network's national coverage and scrap its ability to have a national digital TV-station platform.

In a statement, NBC denied Paxson's charges. "NBC's agreement with Telemundo does not prevent NBC from acquiring Paxson if and when the FCC regulations [putting a cap on station ownership] change," the network said. "Our option to acquire Paxson remains valid until 2009 and we are hopeful that the regulations will change before then."

Paxson also alleged that the three NBC representatives on its board had violated their fiduciary duty by acting in the interest of NBC and not Paxson's shareholders. One of those board members had resigned Nov. 2, and last week the other two stepped down.

In a statement, Bud Paxson said, "It appears obvious that NBC's legal review of this matter has concluded that they have some exposure under FCC rules and guidelines for wrongfully influencing … the NBC-named directors on Paxson's board."

In response, NBC said it has previously offered to have these NBC employees resign from Paxson's board, and the offer was rejected back then.

"Now that Paxson is leveling accusations against NBC, its obviously inappropriate for these employees to sit on the Paxson board," NBC said.