******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Federal Communications Commission Washington, D.C. 20554 In reply refer to: Released: July 30, 1998 Tom Davidson, Esq. Akin, Gump, Strauss, Hauer & Feld 1333 New Hampshire Avenue, N.W. Suite 400 Washington, D.C. 20036 Mace J. Rosenstein, Esq. Hogan & Hartson, L.L.P. Columbia Square 555 Thirteenth Street, N.W. Washington, D.C. 20004 Clifford M. Harrington, Esq. Fisher, Wayland, Cooper, Leader & Zaragoza, L.L.P. 2001 Pennsylvania Avenue, N.W. Suite 400 Washington, D.C. 20006 Re: File No. BTCCT-97123-PA-QC Dear Parties: This letter refers to the applications filed on December 30, 1997, (the "Application") seeking Commission consent to the transfer of control of Commission licensee Telemundo Group, Inc., ("Telemundo") , from its current shareholders to TLMD Station Group, Inc. ("TLMD"). A timely petition to deny the application was filed on February 17, 1998 by Univision Communications, Inc. ("Univision"), the licensee of stations that compete with the Telemundo stations and a competitor of the Telemundo network. TLMD and Telemundo filed oppositions to the petition and Univision filed a reply. Various responsive and supplemental pleadings were thereafter filed by the parties, all of which were considered herein. For the reasons stated below, we grant the application. The Parties. TLMD is a new corporation that, under the proposed transaction, will own and vote 100% of the issued and outstanding stock of Telemundo. At the time the merger is consummated, TLMD will have 1,000 shares of issued and outstanding voting stock, which will be owned 50.1% by Station Partners, LLC ("Station Partners"); 24.95% by Liberty Media Corporation ("Liberty"); and 24.95% by Sony Pictures Entertainment, Inc. ("Sony"). The applicants assert that this breakdown will make Station Partners the single majority shareholder of the new entity. At the time of closing, Station Partners will be a Delaware limited liability company, owned 68% by the Apollo Investment Fund III ("Apollo III") and 32% by Bastion Capital Fund, L.P. ("Bastion"). Apollo III and Bastion are composed of current investors in Telemundo. Through Apollo III and Bastion, Station Partners will be owned 1.18% by alien limited partners. Liberty is a wholly-owned subsidiary of Tele-Communications, Inc. ("TCI"), which is 4.4% alien owned. Sony is a subsidiary of the Sony Corporation, which is a Japanese corporation owned 84.1% by aliens. The Transaction. TLMD will acquire all of the issued and outstanding stock of Telemundo. Following the transaction, Telemundo will remain the parent of the various station licensees, but will become a wholly-owned subsidiary of TLMD. There are two parts to the transaction. In addition to the acquisition of Telemundo and its subsidiary licensees by TLMD, Liberty and Sony will form a company ("Network Company"), which will acquire and operate the network programming and affiliate operations of Telemundo and acquire all of the associated assets. Network Company will not acquire those assets necessary for TLMD to operate its stations. At the end of the transaction, Network Company will be comprised of the network assets and operations of the pre-transaction Telemundo network. Except for station WKAG-TV, San Juan, Puerto Rico, all TLMD stations are required by the agreement to be affiliates of Network Company. Network Company will be owned wholly by Sony and Liberty on a 50/50 basis, without any ownership interest by Station Partners or the current principals. There is no indication that Network Company will hold or try to hold any FCC licenses. The money for the purchase price of the existing Telemundo stock is to be supplied by the shareholders of TLMD in proportion to their ownership interests in TLMD (i.e. 50.1% by Station Partners, 24.95% each by Sony and Liberty.) Under the agreement, there is a put/call option whereby, 5 years after closing, Station Partners can exercise a put with respect to Sony/Liberty and/or Sony/Liberty can exercise a call against Station Partners for all of Station Partners' stock. With certain limited exceptions, neither Station Partners, Sony nor Liberty can sell their stock or subject it to a lien during the 5 year period, unless ordered to by a state or federal authority or unless the sale is to one of their own affiliates or pursuant to their own corporate sale or reorganization. Stock sold pursuant to government order will have limitations on its voting rights. The ability of the parties to exercise the put/call options is subject to FCC and any other required governmental approval. If any party pledges its stock, the pledgee cannot foreclose before the 5 years and must provide 10 days notice of foreclosure. TLMD will have a nine member board of directors. Four directors will be designated by Station Partners, two will be designated by Sony, one will be nominated by Liberty (and subject to election by a majority of TLMD stockholders) and two will be independent directors. Of the two independent directors, one will be nominated by Station Partners and one will be nominated jointly by Sony and Liberty. Independent directors must be approved by all parties. A director may only be removed by the party which designated or nominated that director. Independent directors may only be removed by the agreement of all the parties. Several corporate management decisions, styled "major decisions," require either super-majority or unanimous shareholder, not director, approval. For example, the hiring and firing of the Chief Executive Officer and Chief Financial Officer require the agreement of Station Partners and Sony, but not the involvement of Liberty. Also, any substantial change in the scope of TLMD's Spanish language programming business, acquisition of additional stations, the issuance of equity or debt securities, any merger or reorganization, any transaction in excess of $10 million and any change in affiliation agreements will require unanimous consent of the shareholders. As part of the transaction, Liberty proposes to give Station Partners an irrevocable voting proxy for its entire voting interest, leaving Liberty with no voting interests. This will leave the voting interests divided between Station Partners (75.05%) and Sony (24.95%). The proxy does not apply to any of the "major decisions" discussed in the above paragraph. The Petition to Deny. Univision has asserted that the application should be denied on the basis of improper alien ownership, cross-ownership violations with respect to Liberty and cross-interest violations with respect to Liberty. Univision also contends that the transaction would result in anti-competitive activity and that the applicants have shown a propensity to mislead the Commission. We address each of these issues in turn. Alien Ownership. As noted above, Station Partners will be owned 1.18% by aliens, while Liberty is 4.4.% alien owned and Sony is 84.1% alien owned. The applicants correctly contend that the multiplier should be used to calculate whether the equity alien ownership interest in TLMD would exceed the permissible levels. Citing BBC License Subsidiary, 10 FCC Rcd 10968, 10973 (1995); Wilner & Scheiner, 103 FCC 2d 511, 521 (1985). Using the multiplier, the equity alien ownership percentages are: Station Partners 0.59% (50.1% x 1.18%); Sony 20.98% (24.95% x 84.1%); and Liberty 1.1% (24.95% x 4.4%). Combined this brings the alien equity ownership interest to 22.67%, which is below the 25% permissible level under the statute. See Communications Act of 1934 as amended  310(b). Calculation of voting interests yields a slightly different result. Due to the importance of voting control in determining the actions of a licensee, we do not employ the multiplier in the calculation of alien voting interests of a shareholder in a corporation when that shareholder has more than 50% of the voting interest in the entity. BBC, 10 FCC Rcd at 10973. Therefore, alien voting interests in TLMD under the proposed transaction are as follows: Station Partners 1.18% (multiplier not used because voting interest in licensee exceeds 50%); Sony 20.98% (24.95% x 84.1%); Liberty 1.1% (24.95% x 4.4%). Combined this brings the total alien voting interest to 23.26%, which is below the 25% permissible level under the statute. See Communications Act of 1934 as amended  310(b). Univision argues that because Sony is controlled by a Japanese corporation, it should be treated as though it is 100% alien owned, even though 16% of its stock is owned by Americans or American entities. We believe that Univision's interpretation is incorrect. The cases it cites deal with the general proposition that alien ownership cannot exceed permissible levels, but do not address the novel interpretation of the use of the multiplier that Univision advances. We believe it is entirely proper to apply the multiplier to calculate the level of alien equity interest in a particular entity, even if the party holding the interest is a foreign corporation. As our analysis indicates, application of the multiplier reveals that the parties are in compliance with the alien ownership restrictions, in regard to both equity and voting interests. Cross-Ownership and Cross-Interest. Univision contends that, in spite of the presence of Station Partners as a single majority shareholder and the attempts by the applicants to insulate Liberty's interests in TLMD, those interests should be attributable. Because of Liberty's involvement in various cable and broadcast entities in the same service areas as the Telemundo stations, Univision contends that this attribution will cause violations of our cross-ownership and cross-interest rules. The applicants reply that this is incorrect, relying for their contentions on the single majority shareholder status of Station Partners and on the voting proxy they propose to use to insulate the interests of Liberty. Under 47 C.F.R.  73.3555, Note 2(b), minority stock interest is not cognizable if more than 50% of the outstanding voting stock of the proposed licensee is held by one shareholder. In this case, Station Partners holds 50.1% of the voting stock of TLMD, rendering the interests of Liberty and Sony non-cognizable for attribution purposes. Univision contends that the shareholder protections afforded to Liberty destroy this insulation. We disagree. The shareholder protections proposed in the application do not give Liberty any power to influence the day-to-day operation management and operations of the TLMD station group and, under Commission precedent, do not cause Liberty's interest to become attributable. For example, Liberty's right to nominate, not designate or elect, a director is consistent with the involvement we previously have permitted by a non-attributable investor. See, e.g., BBC, 10 FCC Rcd at 7297, Univision Holdings, Inc., 7 FCC Rcd 6672 (1992). We also note that TLMD has made an affirmative representation that Liberty and Sony would not be involved in the day-to-day operations of the stations. See Letter of Edward York, President TLMD Station Group, Inc. to Barbara A. Kreisman, Chief, Video Services Division, Mass Media Bureau, dated June 4, 1998. The other investor protections in the transaction are consistent with those permitted to a non-attributable shareholder in other proceedings. See Roy M. Speer, 11 FCC Rcd 14147 (1996), modified 11 FCC Rcd 18393 (1996); BBC, 10 FCC Rcd at 7297: Quincy D. Jones, 11 FCC Rcd 2481 (1995). Univision makes an additional argument that the cumulative effect of Liberty's interest in and relationships to TLMD should make the interest attributable. For this position, Univision relies completely on speculation about the future conduct of Liberty in which it may unfairly favor TLMD and does not provide any precedent to support its interpretation of how the law should be applied. As we stated in another proceeding: [P]etitioners are essentially asserting that in the future the Buyer will be operated or controlled in a manner inconsistent with our requirements or with the representations made by the Buyer in the applications and in affidavits. In the absence of properly supported specific allegations of fact to support a contrary conclusion, we do not assume that an applicant will not faithfully carry out its representations or that [an applicant] will be operated or controlled in a manner that differs from the [transaction] under consideration. Univision, 7 FCC Rcd 6675. No such factual allegations have been made here and we reject Univision's contention that Liberty's interest is attributable and that the transaction violates the cross-ownership rule. Univision next contends that the transaction violates the Commission's cross-interest policy because cable systems attributable to TCI will overlap with stations owned by the TLMD and by USA Broadcasting (formerly HSNi, in which Liberty has an interest.) The Commission's cross-interest policy prohibits the common ownership of an attributable interest in one media outlet and a non-attributable, but "meaningful" interest in another media outlet "serving substantially the same area." Reexamination of the Commission's Cross-Interest Policy, 4 FCC Rcd 2208 (1989). Station Partners is the single majority shareholder of TLMD and, therefore, we do not find Liberty's level of ownership to be "meaningful" for cross-interest purposes. Furthermore, we have already found that Liberty's interest in USA Broadcasting, Inc.'s stations is not a "meaningful" interest and Univision has presented no evidence to disturb that conclusion. See Roy M. Speer, 11 FCC Rcd 14147 (1996). Finally, although Univision has once again asserted that the proposed transaction would result in anti-competitive conduct because of cross- interest violations it has not supported that assertion with any facts and has instead relied on pure speculation. We reject Univision's arguments. Anti-competitive Behavior. Univision has made a number of allegations that the parties to the application will engage in anti-competitive behavior to protect their interest in TLMD. They have not provided any facts to support these allegations. As discussed above, the Commission assumes that parties before it will follow the law and will not deny an application based on unsupported allegations to the contrary. Character Issues. Univision has made several broad allegations that the applicants' conduct indicates they do not possess the requisite character to be Commission licensees. For this proposition, Univision claims that the applicants' falsely certified they were in compliance with the alien ownership restrictions and that they lacked candor regarding the details of the transaction. We disagree with Univision. The applicants did rely on a misinterpretation of the application of the multiplier in determining whether they complied with the alien ownership restrictions, but there is no evidence of any bad faith in their reliance. The applicants also revised their statements regarding the amount of alien ownership in the various parties to the application. Although we admonish parties that they should take great care in determining the level of alien involvement prior to filing any application with the Commission where that is an issue, any allegations of misconduct are severely undercut by the thorough and voluntary amendments on that point submitted by the applicants. Presumably, if the applicants intended to deceive the Commission, they would not have been the parties to call any errors in the application to the staff's attention and then to correct those errors. Finally, Univision contends that the applicants attempted to conceal the creation of the Telemundo Network separate from TLMD from the Commission. In light of the fact that the applicants submitted the contract that would create the Telemundo Network as part of the Application, we do not find Univision's contention credible. Therefore, we reject Univision's argument on this point. Accordingly, IT IS ORDERED, that the application to transfer control of Telemundo Group, Inc. from its current shareholders to TLMD Station Group, Inc. is GRANTED and that the petition to deny filed by Univision Communications, Inc. is DENIED. Sincerely, Barbara A. Kreisman Chief, Video Services Division Mass Media Bureau