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Paxson Out as NBC U Nears Control

11/07/2005 4:21 AM Eastern

NBC Universal has restructured its often-contentious relationship with Paxson Communications Corp., striking a deal that could give the cable and broadcast powerhouse a controlling interest in the fledgling network and forcing Paxson founder and chairman Lowell “Bud” Paxson to the sidelines.

According to the deal, NBC U has acquired an 18-month call right to purchase all of Bud Paxson’s stock in Paxson Communications, including his voting shares. Paxson will also step down as chairman, becoming chairman emeritus of the company.

NBC U executive vice president of business development and international channels R. Brandon Burgess has resigned that position, and he will become CEO of Paxson Communications Nov. 10.

Because Paxson Communications owns about 60 television stations, NBC U could not exercise the call rights itself under current federal regulations that cap the number of stations one company can own. If those federal rules do not change in the next year-and-a-half, NBC U can transfer the call right to a third party.

NBC U paid Bud Paxson about $25 million ($1 per share for each class-A share and $1.15 for each class-B share) for the call rights. According to a press release, the call rights are exercisable at 25 cents per share for class-A shares and 29 cents for class-B shares.

To exercise the call rights, NBC U would have to make a tender offer for Paxson Communications shares at $1.25 each. If NBC U or a third party is unable to exercise the rights, NBC U would then be required to pay Paxson Communications shareholders (except Bud Paxson) $105 million in its series-B preferred stock.

The deal also ends what has been a long legal battle over changes Bud Paxson has made at the company’s network -- changing its name to from Pax TV to “i” and revamping its programming by dropping its family-friendly focus and concentrating on original series and movies from independent producers and syndicators. As part of the deal, all outstanding litigation has been settled.

NBC U’s predecessor, NBC, bought a 32% interest in Paxson Communications in 1999 for $415 million, with the right to buy the rest of the network in 2009. Since then, the two companies have squabbled about the structure of the agreement.

The fight was brought to a head in 2002, when Paxson unsuccessfully attempted to block NBC’s $2.5 billion acquisition of Spanish-language programmer Telemundo Communications Group Inc. Paxson had claimed that Telemundo’s 11 television stations would prevent NBC from honoring its earlier deal to buy Paxson outright.

“NBC Universal has been the largest financial investor in Paxson Communications for some time, and we continue to believe that Paxson Communications has a compelling national platform,” NBC U chairman Bob Wright said in a prepared statement.

“This agreement gives Paxson Communications the flexibility to invite new partners and investors who do not face the same FCC [Federal Communications Commission] limitations that we do and who are interested in investing in and programming a nationwide television-distribution platform,” Wright added.

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