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In quickening its pursuit of Spanish-language broadcaster Telemundo Holdings Inc., NBC is betting that U.S. regulators will relax station ownership restrictions so that it can add even more outlets in the nation’s largest markets. That NBC, whose approach to acquisitions has traditionally been toe-in-the-water rather than swan dive, inched past perennial Telemundo suitor Viacom Inc. since Sept. 11 should have been the first clue. “There needs to be meaningful regulatory change for a deal with Telemundo to work in NBC’s favor,” said Bishop Cheen, high-yield analyst with First Union Securities Inc. “The [Bush] administration was leaning toward deregulation prior to Sept. 11. Now, with the weaker economy and an even weaker ad market hitting television especially hard, the administration will be even more sympathetic to less regulation since it will give Bush one less industry to bail out.” Sources close to the negotiations said Hialeah, Fla.-based Telemundo could seal a deal with NBC, a unit of Fairfield, Conn.-based General Electric Co., worth $1.7 billion in cash and stock plus the assumption of $700 million in debt, for a total value of $2.4 billion, by the end of the week. Viacom, they say, is content to let Telemundo go by at that price given its current per share value and the very rich 45 times 2001 Ebitda of $60 million NBC would be paying. They caution, however, that Viacom’s bid was not far below the rumored purchase price, and COO Mel Karmazin’s competitive nature raises the possibility of Viacom trumping NBC at the last minute. Industry observers expect NBC to win because GE is willing to pay the most, but many broadcasters are interested. “Everybody’s looking for money [from network TV],” said one expert on the Hispanic TV market. Either way, this person said, Telemundo is likely to be sold. John Malone, whose Liberty Media Corp. owns 40 percent of Telemundo “is tired of dumping money into it every time it wants to expand,” the expert said. On the surface, Telemundo’s strategic fit with Viacom is stronger than with NBC. “I’m not sure a Telemundo deal is what fixes NBC,” said a source who asked not to be identified. “Does this deal elevate NBC to the level of a world class media company on par with Disney, Fox, AOL and Viacom? Is this the right kind of bulk?” The answer, taking a Telemundo deal by itself, is no. Which is why insiders say NBC does not see this deal as a home run but rather as a way to get some runners on the basepaths to drive in later in the ball game. “NBC wants to acquire lots of things,” Cheen said. “They have designs on Paxson and options on Granite that give them a backdoor way to acquire that company’s San Francisco duopoly should Granite get into more financial trouble.” NBC made an initial $450 million investment in Paxson Communications Corp., a station owner and operator of the PAX TV network, and has operational joint ventures that would, as Cheen describes it, “make getting divorced less practical” than marrying. NBC is also the primary network for Granite Broadcasting Corp.-affiliated stations. Granite recently put its Detroit station on the block in an attempt to raise cash to ease a debt load of more than $600 million and analysts expect more “forced asset sales” from the company. A Telemundo deal brings not only programming and advertising synergies to NBC and its related cable networks, but also 19 owned and operated stations in several of the largest U.S. markets. If the Federal Communications Commission raises its national audience cap limit to 50 percent from 35 percent, which industry watchers expect it will, NBC can complete a deal for Paxson and Telemundo. Completing those two deals would require NBC to divest stations in New York, Los Angeles, Chicago, San Francisco and Miami because the network would own three stations in each market, a violation of another FCC mandate. But, since the remaining duopoly in each city would only count once against the national audience cap, it would create more room for NBC to make acquisitions. A raised cap only compounds the room for growth. Investors are certain to send GE’s stock downward on the closing of a deal, given the roughly $1.2 billion return on investment Sony Corp. and Liberty will get on the $539 million they collectively paid in 1997 for their controlling stakes in Telemundo. In addition, Telemundo runs a distant second in the marketplace to Univision Communications Inc. Analysts, however, say the synergies NBC brings warrant a re-evaluation. Those synergies go way beyond bundling ads across NBC, CNBC, MSNBC, Paxson and Telemundo. Take programming, the single biggest expense for a network. Telemundo needs it and NBC, as UBS Warburg analyst Chris Dixon points out, owns 40 percent of what’s shown on its network. Dixon said it does not matter that Telemundo broadcasts in Spanish because NBC can dub or repurpose its programming in other ways for the Hispanic audience. The network is already well-versed in formatting programming in different languages via its Asian and European business news feeds. “Telemundo being a distant second also allows for greater opportunity to capture market share on the programming side,” said Jeffrey Logsdon, entertainment analyst with Gerard Klauer Mattison & Co. “NBC has been one of the most successful networks in ratings over the last five years,” meaning it can leverage its creative expertise to cut into Univision’s lead. Such factors lead Cheen to question weighing the deal’s value on its cash flow multiple. “Forty-five times what? Depressed cash flow?” he asked. “Nobody buys anything based on the trailing work of the seller. If they did, your paper could go away because there’d be no deals.” Rather, Cheen measures a deal’s worth on its value per TV household. At $2.4 billion, Telemundo’s 31.7 million total homes would be valued at $76 per home. That’s about $25 per home higher than comparable deals for Fox Family Worldwide, which Disney purchased for $50 per TV household, and BET, which Viacom snagged for $44 per home. On a per-TV-home basis, Univision’s $1.1 billion deal for USA Broadcasting worked out to a miserly $31.50. That scenario, however, was inverse to a proposed NBC-Telemundo deal in that the Spanish-language broadcaster was the buyer. Even so, an NBC-Telemundo hookup would be cheaper on a per Hispanic home metric, which is the market NBC would be acquiring the company for anyway. Telemundo’s 6.8 million Hispanic homes passed equates to $353 per home, whereas Univision’s public market value is about $400 per home. “It may be somewhat expensive on the entry in,” Cheen said. “But these things aren’t like Burger Kings. They’re in fixed supply.” NBC and Telemundo could not be reached for comment. Viacom declined to comment. Richard Morgan contributed to this report.

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