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The Federal Communications Commission is examining whether the proposed $3 billion union of Univision Communications Inc. and Hispanic Broadcasting Corp. would violate federal media ownership rules, a move that could force the merged company to sell radio stations. At issue are the FCC’s so-called attribution rules, which outline a series of situations in which one company is considered to be part of another company when determining compliance with broadcast ownership limits. Typically a company must be able to assert some level of control over the other business, often through voting stock or positions on the board. Regulators “are clearly looking at those attribution issues,” said Arthur V. Belendiuk, a partner at law firm Smithwick & Belendiuk in Washington, D.C., who represents a group opposed to the merger. Univision and HBC knew from the start that the attribution rules would be a problem because Univision owns about 30 percent of Entravision Communications Corp., whose radio stations compete against HBC, the biggest Spanish-language radio broadcaster. As a solution Univison proposed switching its stake in Entravision to preferred, nonvoting shares. This would allow it to retain an economic stake in the unit while relinquishing any control over its operation, Univision has argued. In a Dec. 9 letter to the FCC, Univision said the preferred stock would include the requirement that Entravision obtain its consent before buying or selling assets valued at more than $25 million, incurring debts in excess of 5 times Ebitda, issuing additional shares that would dilute Univision’s stake or accepting an acquisition offer. “The commission has repeatedly held that such rights are permissible and do not create attribution,” Univision lawyer Scott R. Flick of Shaw Pittman in Washington wrote in the letter. But a Hispanic advocacy group led by New York Sen. Efrain Gonzalez Jr. argued in a Dec. 16 letter to the FCC that these conditions appear to go far beyond what the agency has previously approved, noting that they give Univision effective control over most of Entravision’s corporate decision making. Though Gonzalez’s National Hispanic Policy Institute is relatively new and lacks the national prominence of other advocacy organizations, it has hired experienced counsel in Washington to argue its point. Belendiuk and his firm only do FCC regulatory work, and they know their way around the agency. Belendiuk argued in the Dec. 16 letter that the powers Univision would gain over Entravision would be so extensive that it would have de facto control over its operations, which means under FCC rules the interest is attributable. “Univision will have the right to control every aspect of Entravision’s finances,” he wrote. Entravision’s most recent annual report shows EBITDA of $50.4 million against total liabilities of $457.4 million. That means Entravision already is beyond the 5 times EBITDA debt limit which triggers Univision’s right to approve additional debt, Belendiuk said. That means Entravision would need Univision’s consent before, for example, financing the replacement of a damaged antenna or purchasing programming from a supplier that subjects it to future payments for the content, he said. The new rights also could essentially prevent Entravision from growing, Belendiuk said. That’s because it could not issue new shares to finance expansion without Univision’s consent. It also could not effectively buy any major television stations without its parent’s approval because the likely purchase price would be more than 10 times the $25 million trigger, he said. “Entravision is like a man with both hands tied behind his back and a noose around this neck,” Belendiuk wrote. “The man is free to move around, but he only can go so far before the noose chokes off his air supply.” Representatives of Univision, HBC, Entravision and the FCC did not return calls for comment; Flick declined to comment. The dispute over Entravision could delay the merger, but it is not expected to derail the deal. Though the merger agreement says Univision does not have to sell any TV stations to win regulatory approval, it does appear to require the sale of radio assets if needed. The agreement says Univision must use its “reasonable best efforts” and take “all reasonable actions necessary” to win regulatory approval unless the action would result in a material adverse effect to either merger partner. Specially exempted from the definition of a MAE is the sale of radio assets or the beneficial ownership attributable to Univision from any radio assets. Lawyers and arbitrators monitoring the deal have repeatedly said this clause means Univision will sell either its Entravision stake or as many radio stations as needed to get the deal done. “This thing is still going through,” one source said. How many stations could be sold is unclear. One source said the extensive analysis work required to figure out how many stations compete in various markets is unfinished. Without this data, it is impossible to determine which stations could be sold. Gonzalez said his group opposes the deal because it will harm the Hispanic community. “Univision should stay Univision and HBC should stay what they are,” said Gonzalez, a Democrat who represents the Bronx. The NHPI was formed in the late 1990s and in 2000 filed objections with the FCC on Clear Channel Communications Inc.’s deal for AMFM Inc., he said. The institute is independent, he said, and has not received funding from Spanish Broadcasting Corp., which as the major rival to Univision-HBC also has been fighting the merger. “I’m optimistic,” Gonzalez said of his campaign to stop the deal. “You got to keep trying. The issue is what is in the public interest.” Copyright �2002 TDD, LLC. All rights reserved.

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