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Univision Agrees to $13.7 Billion Deal Amid Questions About Future

Posted on: Tuesday, 27 June 2006, 21:00 CDT

DALLAS _ After a tumultuous auction, Spanish-language media giant Univision Communications Inc. said Tuesday that it had signed a $13.7 billion deal to be bought by a consortium that includes Texas Pacific Group of Fort Worth and media mogul Haim Saban.

But the tougher challenge may be ahead of it.

Univision faces the same challenges as any other media company that must compete for advertising against tech-driven rivals in an ever-splintering media market.

Moreover, its business plan is largely based on audience growth from immigration and the idea that even acculturated, U.S.-born Hispanics continue to watch its telenovela and game show fare.

Now Congress is considering legislation that could restrict immigration flows.

And while the Hispanic population continues to soar, its growth is fueled more by U.S. birth rates than immigration.

That U.S.-born generation is 46 percent English-dominant and 47 percent bilingual, according to the Pew Hispanic Center. The next generation is 78 percent English-dominant and 22 percent bilingual.

"Take the pulse of young people 21 and under and have them talk about the Spanish-language programming," says Juan Faura, the Mexico City-born head of the Cultura marketing and advertising firm. "What they want has very little to do with the language; it has to do with the quality of the programming."

With Mexican media giant Grupo Televisa SA and its consortium of investors on the losing side of the auction, change may take hold faster at Los Angeles-based Univision, Faura theorized, referring to the strained relationship between the two Spanish media giants.

Televisa was thought to be the logical buyer. It already has an 11 percent stake in Univision, and the grandfather of current Televisa chief executive Emilio Azcarraga Jean helped found Univision's predecessor network. Televisa also supplies about half of the programming now seen on Univision, a contract that lasts through 2017.

But Saban's team outbid the Televisa consortium, offering to acquire Univision for $36.25 a share in cash and to assume $1.4 billion in debt. Still, the bid was below the $40 that Univision had originally sought.

In Mexico City, Televisa issued a terse statement saying it was disappointed in the auction's outcome:

"Notwithstanding our repeated offers to discuss all aspects of our proposal including price, Univision and its advisers refused to enter into any discussions with us after we submitted our initial bid. Given this action by Univision's board, Televisa has a number of alternatives it is considering."

A Televisa spokesman didn't return messages to clarify the alternatives. Its bargaining muscle weakened when some investors in its consortium pulled out, though Televisa was still linked with investors Boston-based Bain Capital and tech billionaire Bill Gates' Cascade Investments.

A. Jerrold Perenchio, 75, chairman and chief executive of Univision, was effusive about the deal. He led the team that purchased Univision for only $550 million in 1992 from then-owner Hallmark Cards Inc. Tuesday, he termed the transaction a "blockbuster."

In a written statement, Perenchio said, "This blue-chip group brings to Univision in-depth knowledge of the rapidly changing media landscape."

And Univision needs to innovate, critics and analysts say.

Media are splintering, and Spanish-language media aren't immune to that trend.

Last year, Univision's revenue increased 9 percent to about $1.95 billion. Nearly 70 percent of its revenue came from the television unit.

Revenue at Univision's Dallas-based radio unit provided about a fifth of the flow, and its music unit contributed about 10 percent.

The acquiring group, led by the Egypt-born Saban, said in a statement that Univision was an "outstanding media brand with exceptional positions in the fastest-growing markets."

An industry executive close to the negotiations said it's expected that the acquiring group will keep current Univision management in place. Televisa executives were known to have been unhappy with Univision's top management.

Texas Pacific Group, one of Saban's partners, also holds another media property, Metro-Goldwyn Mayer. But its buyout targets have otherwise been far-flung: Dallas' Neiman-Marcus retail chain, China's largest computer maker and one of Greece's three wireless operators.

Saban's other partners are Madison Dearborn Partners, Providence Equity Partners Inc. and Thomas H. Lee Partners LP.

The group paid a 13 percent premium to Univision's closing stock price on Monday.

The deal, if approved by Univision shareholders and federal regulators, is expected to close by the first quarter of 2007.

On Wall Street, Univision stock rose 6 percent, or $1.97, to close at $34 a share.

Philip Remek, a senior media analyst at Guzman & Co., said the acquiring consortium paid a high multiple for the company.

"So they have their work cut out for them to maintain growth or accelerate it," Remek said, noting that Univision has had "several slow growth quarters."

Even though some Hispanics may prefer to consume media in English, Univision is still experiencing audience growth, "but the revenue growth is much more modest," Remek said.

The current, monthlong World Cup _ a soccer fiesta known as El Mundial _ may not translate into a profit boost at Univision where it's now being aired, he said.

"There are still a lot of major advertisers who don't do business with them," Remek said. "I think there are higher-end advertisers who don't spend on Univision. You will never see a Lexis ad or a Merrill Lynch ad on Univision."

Even as wealthier and non-immigrant Latinos consume more media in English, the potential for continued immigration, legal and illegal, is strong.

"It is quite a franchise to know that you have a steady stream of new clients to be added to your audience each year _ this is barring any new political circumstances that would reduce the flow," said Roberto Suro, director of the nonpartisan Pew Hispanic Center.

___

(c) 2006, The Dallas Morning News.

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Source: The Dallas Morning News

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