Paxson Getting Ready To Sell Out?

Omens include cost-cutting agenda and station sales
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Paxson Communications Chairman Bud Paxson is paring down Pax TV, getting it ready to be sold, sources say.

The company is implementing a huge cost-cutting program that, coupled with the sale of some smaller-market "non-core" TV stations, is designed to get it to a break-even (after interest payments and capital expenses) by 2003.

The steps are being taken, analysts say, because company Chairman Bud Paxson wants to sell the network he created to NBC, which currently owns about a third of Paxson, or to some third party by 2004.

Paxson needs to shore up the balance sheet to raise the company's stock price—it has been hovering in the $2.50 vicinity—so that the company has more bargaining power with potential buyers.

The magnitude of the cost-cutting program is still not finalized, insiders say. But the cutting has begun.

Last week, three Paxson regional vice presidents got the axe. In addition, the company is currently in the process of consolidating its West Coast operation, with a big piece—the promotion and publicity arm—being relocated back to West Palm Beach where Paxson is based.

Insiders say more layoffs are to come, with the complete streamlining plan to be implemented by early 2003.

The network's programming budget is also being reduced significantly, as Pax TV weans itself from off-network and other syndicated fare to largely original programming.

Paxson President Jeff Sagansky told analysts and investors that, next year, the company will shave $40 million off its syndication programming expenses, taking them down to about $23 million.

Original-programming expenses will increase, but there will be a significant net savings on the program-cost side, he said, without disclosing a figure.

Further savings will come as the company develops a library of shows it can use as reruns on the network.

Paxson also intends to generate $100 million through the sale of some of its smaller-market TV stations and expects to have about $60 million of that revenue on its books by year's end with the other $40 million contracted for.

The most recent sale was announced last week: Corporate Media Consultants Group agreed to buy Paxson's WMPX-TV Portland-Auburn, Me., and WPXO(TV) St. Croix for a total a total of $10 million.

Paxson, also president of Pax TV, insisted last week that the net's household coverage would not drop with the sales. If the stations drop the net, Pax will find a home on cable in those markets.

For Paxson, 2004 is key in terms of the NBC alliance. That's the first year that Paxson has the right to buy NBC's investment out, for the same amount that NBC put up ($415 million) plus 8% interest. NBC, in turn, has an annual window to force Paxson to buy out its stake on the same terms. This year's window has expired.

But the bottom line for investors is that they're in Paxson Communications for the assets and they hope to cash out sooner rather than later.

The question is, can Paxson make it happen by 2004? "Right now, they're taking steps to get to that point," says CIBC analyst Todd Morgan. "The second goal is just to make sure that the world understands that. They think the steps they're taking will help their stock price, which would give them more negotiating room with other third parties and/or NBC."

Dan Trigoboff contributed to this story.

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