Paxson not at peace with NBC

NBC's proposed acquisition of Telemundo is the last straw, says Paxson Communications Corp. CEO Jeff Sagansky, citing a string of actions by the peacock network that, he says, violate both the letter and spirit of the 32% ownership stake that NBC agreed to in 1999. NBC officials say that's a bunch of baloney, contending that Paxson is simply trying to extricate itself from a legally binding agreement that no longer suits its purposes.

And they wonder whether Paxson's legal steps toward possibly dissolving the alliance are motivated at least in part by Paxson's not wanting to share what might be a pretax windfall of close to $1.5 billion from an auction of the 700 MHz band next year.

Last week, Paxson initiated an arbitration proceeding and a request that the FCC deny the Telemundo acquisition.

Paxson and NBC could patch things up, although the aspersions cast last week were rancorous, particularly from Paxson's side. Paxson even charged that NBC may have violated the Communications Act, not to mention various FCC and SEC rules.

NBC chief legal counsel Lawrence Tu says all of Paxson's charges are without merit. "We're confident that we will clear the allegations and then go back to continuing our current relationship" with Paxson, he said last week. Others at the network say Paxson is simply frustrated that the 35% ownership cap hasn't gone away and wants to sell to somebody else.

Paxson says that NBC's acquisition of Telemundo would make it harder for NBC to exercise existing options to buy control of Paxson, in violation of their 1999 agreement. In a press conference last week, Paxson Chairman Lowell "Bud" Paxson complained, "I feel like a woman that's just been jilted."

According to FCC filings by Paxson, tensions in the relationship go back at least to fall 2000, when Paxson asked for additional financing from the network. NBC's response was yes but with numerous strings attached, including changes in some terms of their larger alliance. Paxson said no thanks and went out and did an independent financing for $200 million.

At one point during a Paxson board of directors meeting this year, three directors appointed by NBC—TV network CFO Brandon Burgess, syndication head Ed Wilson and sales chief Keith Turner—abstained from a vote on approving the new financing package. Paxson suggested that their action was an attempt to hamper its future financial health and therefore a breach of their fiduciary obligations to the company's shareholders. But NBC sources say the three abstained because of a potential conflict of interest: Parent GE was one of the parties involved in the possible outside financing.

All three NBC-appointed members have resigned from the Paxson board—Burgess in November and Wilson and Turner last week.

At the FCC, Paxson asked that NBC be denied permission to buy Telemundo, contending that the Telemundo acquisition would erect further regulatory obstacles to NBC's eventually acquiring control of Paxson, in violation of their strategic alliance. In particular, Telemundo would give NBC control of three stations in five of the top 10 markets—New York, Los Angeles, Chicago, Miami and Dallas—if the Paxson stations are included. "No one envisions the commission authorizing triopolies," says Paxson's Sagansky.

That's not quite true. NBC will argue the case for them, sources say. The heart of the argument will be that a Spanish-language station really doesn't compete in the same arena as English-language stations.

And NBC is not alone. "We're not convinced you won't see triopoly legalized," says Sinclair Broadcast Group's David Amy. Sinclair is pressing for further relaxation of the FCC's duopoly rules—in a lawsuit that has been joined by Paxson.