Markets & Finance

Televisa and Univision: Stay Tuned!


You want a fight? Grupo Televisa (TV), the Mexican broadcasting giant, can give you one. At least, the company's founding Azcarraga family has always been a tough pill for U.S. Hispanic media company Univision Communications (UVN) and its equally combative CEO Jerry Perenchio. Years back, when Perenchio was first fashioning the TV station group that would become the $1.9 billion TV, radio, and music empire, the Univision CEO was said to have physically tussled with Televisa's then-chairman, Emilo Azcarraga Milmo, over—of all things—who would pay the bill at a restaurant. Since then, Perenchio has battled in court and the board room with Azcarraga's son, whose company currently owns 11% of Univision.

So it would hardly be surprising if Perenchio's decision to reject a takeover bid from Televisa and sell his company to someone else did not put an end to the fight. On June 27, Univision said it would sell itself for $13.7 billion and the assumption of $1.4 billion in debt to a group of private equity firms that includes billionaire dealmaker Haim Saban. "I am delighted to announce this blockbuster transaction," said Perenchio, in a prepared statement. Univision's board has approved the transaction, though it remains subject to shareholder and regulatory approval.

"MATERIALLY HIGHER." Soon afterward, Televisa issued a statement of its own. In ominous tones, the company said the Univision board had "refused to enter into any discussions with us after we submitted our initial bid" and that Televisa "has a number of alternatives that it is considering."

The alternatives? Take your pick: The company is already waging a nasty legal battle against Univision over the programs Televisa supplies to its longtime U.S. partner. It may launch a competing Spanish-language network in the U.S., and it might, just might, make yet another bid for Perenchio's company.

Yes, it's chaotic. Here is what's clear: the Saban group, which is led by private equity firms that include Providence Equity Partners, Texas Pacific Group, and Thomas H. Lee Partners, successfully bid $36.25 a share for Univision. Televisa bid around $35.75 a share and, at least until the Univision board met late on June 27, was considered the lead bid. We also know that Televisa would likely face huge regulatory issues since federal rules limit foreign companies from owning more than 25% of a U.S.-based broadcaster, like Univision, that owns TV or radio stations.

Everything else, it seems, is up in the air. Univision executives believe that the deal that they have struck with the Saban group will close sometime in early 2007. There is a $300 million "break-up" fee in place should another bid emerge, say sources with knowledge of the deal. Will there be such a bid? Possibly. But Televisa would have to make an offer "materially higher," says JP Morgan analyst John Backledge in a just issued report.

SUITS AND COUNTERSUITS. That's because it would have to convince the Univision board to back a company that has generally been a thorn in its side for years. How high? Maybe $2 a share, figures Merrill Lynch analyst Jessica Reif-Cohen in another report, or closer to the $40 a share that Perenchio has said he wanted.

A more intriguing possibility is that Televisa, which provides 36% of Univision's weekly diet of telenovellas and other programs under a long-term deal, might try to launch its own competing TV network in the U.S. The company has said it would look into doing just that were it to lose out on Univision. It could sidle up to U.S. TV station owners, such as ION Media Networks (ION) or The McGraw-Hill Companies (MHP) (which also owns BusinessWeek) and offer Spanish programs that would air on soon-to-be-established added digital airwaves controlled by those companies. It might also seek an agreement with NBC's Telemundo network, the industry's second-ranked U.S. Spanish network.

To make that work, Televisa would need to rid itself of an agreement, which runs through 2017, to provide its programs exclusively to Univision in the U.S. Televisa is already trying to do just that: In June, 2005, it filed suit in U.S. federal court, alleging among other things that Univision hadn't paid for the use of some soccer games and had engaged in "unauthorized editing" of some of its shows. Univision, which has countersued, paid Televisa $6 million "under protest," it says in a financial filing.

If successful, Televisa wants "the right to suspend or terminate its performance" under the program supply agreement, according to the Univision financial filing. Televisa has also disputed whether Univision has the rights to distribute Televisa-produced programs over the Internet in the U.S. when their current Internet agreement expires later this year.

GIVE PEACE A CHANCE. One thing is for certain: Univision may call the agreement to sell itself to the Saban group "definitive," but the deal isn't yet final. The sale has so far set new records for surprise twists and absurd backroom theatrics. (Four of Televisa's partners bolted, including another long-time Univision program supplier, with Televisa's hard-nosed antics at least partly to blame.) So what's a few more theatrics?

Merrill Lynch's Cohen figures that the private equity guys will want out sooner or later, and that Televisa still remains the logical buyer. She figures that the Saban group might give Televisa better terms on its program agreement in exchange for an extension, and perhaps would give Televisa the right to buy all of Televisa somewhere down the road. Neither Univision or Televisa would comment.

Certainly, it sounds as if analysts believe peace could eventually break out in the battlefield known as Univision. Anything is possible when money, power, and outsized egos are at stake. And logic dictates that Univision belongs in the hands of a company that knows Spanish language programming. Of course, when Univision and Televisa begin to battle, logic has often been the first casualty.


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