Paxson TV Brings Actions Against NBC For Telemundo Acquisition.

Paxson Communications Corporation announced that it has commenced a binding arbitration proceeding against NBC, a wholly owned subsidiary of the General Electric Company (GE), for breaching agreements between Paxson and NBC as well as NBC’s breach of fiduciary duty to Paxson and Paxson’s shareholders. Paxson has engaged the law firm of Boies, Schiller & Flexner to pursue the arbitration claim which asserts that NBC’s proposed acquisition of Telemundo violates the terms of the agreements governing the investment and partnership between Paxson and NBC.

Additionally, Paxson has made two filings with the Federal Communications Commission. The first FCC filing requests a declaratory ruling as to whether conduct by NBC has caused NBC to have an attributable interest in Paxson in violation of FCC rules or has infringed on Paxson’s rights as an FCC license holder. The second FCC filing seeks to deny FCC approval of NBC’s acquisition of the Telemundo TV stations.

Paxson’s arbitration claim asserts that NBC agreed it would take no action to create additional regulatory hurdles to complete the acquisition of Paxson. The Telemundo transaction, if consummated, would make it virtually impossible for NBC to complete its path to control of Paxson. Paxson believes an NBC/Telemundo/Paxson combination would require major market station divestitures of Paxson’s stations in New York, Los Angeles, Chicago, Miami and Dallas, thus severely cutting into the national coverage of the PAX network and destroying the ability to create multiple nationwide networks on Paxson’s digital TV station platform. For these reasons, Paxson is asking the arbitrator to enjoin NBC from going forward with the Telemundo transaction. The arbitration claim further asserts that NBC violated its fiduciary duties to Paxson and its shareholders by seeking to improperly influence the conduct of NBC directors on Paxson’s board. Paxson believes NBC’s conduct, in light of the Telemundo transaction, reflects its goal of trying to reduce the price of its path to control of Paxson and to exert leverage to force Paxson to restructure the arrangement so as to provide even more favorable terms to NBC to the detriment of Paxson’s shareholders.

Paxson’s request for a declaratory ruling before the FCC seeks a determination of whether NBC’s influence and apparent control over the NBC directors on Paxson’s board has caused NBC to have an attributable interest in Paxson’s stations or whether NBC’s conduct as a whole has infringed on Paxson’s rights as an FCC licensee. This action at the FCC, along with the petition to deny the acquisition by NBC of the Telemundo stations, seeks to have the FCC take the necessary steps to correct NBC’s actions and block the Telemundo acquisition, or in the alternative, to require NBC to divest its investment in Paxson.

Chairman Lowell “Bud” Paxson said, “Our efforts are intended to require NBC to honor its agreement to acquire Paxson, conduct the partnership in accordance with FCC rules and terminate its acquisition of Telemundo. Alternatively, we want to be free to explore other opportunities to sell the company or team up with other strategic partners to increase shareholder value.”

Paxson’s President and CEO, Jeff Sagansky, said, “Under the terms of the agreements we entered into with NBC in September of 1999, both parties agreed to work toward resolving, not creating additional regulatory hurdles to the consummation of the Paxson acquisition by NBC. This partnership with NBC was intended to provide financial and strategic benefits to Paxson and strengthen Paxson’s ability to offer family-friendly programming to the nation’s television viewers. Instead, NBC has engaged in a pattern of board conduct that, in light of the Telemundo deal, evidences a breach of its agreements and its fiduciary obligations, all to the detriment of our company and its shareholders.” Sagansky concluded, “Paxson’s decision to pursue all legal means available against NBC to enforce our rights is intended to protect Paxson and its shareholders from NBC’s apparent indifference to its contractual obligations and FCC rules. Our arbitration and filings at the FCC seek to prevent NBC from acquiring Telemundo and to require NBC to abide by the letter and spirit of our agreements.”