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Time-Warner Merger Could Force Sale of South Bay Cable Company

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Times Staff Writer

The impending merger of Time Inc. and Warner Communications Inc. could result in the sale of Paragon Communications, which provides cable services for about 54,000 homes in five South Bay cities.

If the merger announced March 5 is approved, the new Time Warner Inc. will hold stakes in both Paragon Communications, now partly owned by a Time subsidiary, and KCOP-TV in Los Angeles. Warner owns a large share of the company that owns KCOP.

The Federal Communications Commission prohibits a company from holding more than 5% of the stock in both a cable system and a television station in the same market.

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Paragon has franchise agreements with Torrance, Gardena, Lawndale, Hawthorne and El Segundo. KCOP-TV serves most of Southern California from San Barbara to San Diego.

A spokesperson for Time in New York, who asked to remain anonymous, said the company will most likely sell Paragon to comply with the FCC rule.

Officials with Paragon and its parent company, American Television & Communications, confirmed the potential for conflict with the FCC rules but declined to speculate about how it might be resolved.

‘Stay Tuned’

“The potential problem is one that owners of Paragon are discussing,” said Jerome Ramsey, vice president of division affairs for Paragon. “ATC is or will be discussing it with the FCC.”

Harry Gerkin, senior vice president and general counsel for American Television & Communications, said his company is “looking into” the situation but he would not elaborate.

“I guess we’ll just have to stay tuned,” he said.

There is no clear way to resolve the conflict because Time and Warner own stock in Paragon and KCOP through a web of subsidiaries and stock holdings, according to several officials.

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Time Inc. owns 82% of American Television & Communications, the second largest cable operator in the nation. American Television & Communications owns 50% of Paragon Communications, according to company officials. Houston Industries Inc. in Houston, Tex., owns the other 50%.

Warner owns 42% of BHC Inc., which owns seven TV stations including KCOP.

J. Richard Munro, chairman of Time, said last month that he expects “no problem” from the federal government in getting approval of the merger and added that lawmakers seemed “very supportive” of it.

An official with the Securities and Exchange Commission said that Time Warner Inc. could resolve the conflict by selling KCOP or Paragon, or by getting the FCC to waive the cross-ownership rule.

“The FCC doesn’t want them to get a stranglehold on the means to present news to the public in the area,” said Irving Einhorn, regional administrator for the Securities and Exchange Commission in Los Angeles. “They want competition.”

But Einhorn said Time Warner Inc. could argue that a waiver is justified because single ownership of both the cable company and the television station would not have a drastic effect on broadcast competition in Los Angeles.

The Time-Warner merger, which would create an $18-billion media conglomerate, cannot be consummated until federal regulators review the plan for antitrust implications and until it is put to a shareholders’ vote.

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But, Einhorn said, “Mergers can be done quickly if it’s a friendly takeover. The business side of buying a company can be done in less than a day.”

The situation is of interest to city officials in the South Bay because their franchise agreements with Paragon require each city to approve any ownership change.

“We’ve been watching this kind of closely,” said Harry Reeves, Hawthorne’s chief of special services.

Like the other four cities, Hawthorne can place conditions on its approval of the transfer. For example, Reeves said the city could ask Paragon’s new owners to increase local cable coverage of city and community events and to improve public access to cable.

A Lawndale official said that city could also place conditions on a transfer but “we don’t have any outstanding issues” to resolve with the cable company.

Don Harrison, an assistant to the city manager in El Segundo, said that if his city were to set such conditions he would ask that broadcasting equipment for city events be upgraded and that coverage of community functions be increased.

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Torrance’s cable administrator, Warren Carter, acknowledged that Torrance could also place conditions on a transfer approval, but said he would not speculate about specific conditions until the sale of Paragon is confirmed.

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