Wednesday June 12, 1:35 pm Eastern Time Reuters Business Report Univision Buys Hispanic Broadcasting
By Jeffrey Goldfarb
NEW YORK (Reuters) - Univision Communications Inc. (NYSE:UVN - News), the No. 1 U.S. Spanish-language television group, on Wednesday said it would buy radio's Hispanic Broadcasting Corp. (NYSE:HSP - News) for $3.5 billion in stock as the company widens its reach on the nation's 35 million Latinos. ADVERTISEMENT
By adding Hispanic Broadcasting's 55 U.S. radio stations, Univision becomes the top TV, radio, online and music provider for the fastest growing segment of the U.S. population.
Advertisers are increasingly trying to reach the one in eight Americans who are of Hispanic origin for their burgeoning buying power, and Univision aims to increase its share of the advertising pie.
"This transaction is all about accelerating the growth of Spanish-language media by taking more money from English-language media," Andrew Hobson, Univision's executive vice president, said on a call with analysts and reporters.
Univision's soap operas -- or telenovelas -- talk shows, and sports programs reach 97 percent of U.S. Hispanic households. Hispanic Broadcasting similarly dominates radio. It operates the top Spanish station in nine of the leading markets, including Los Angeles and Miami. Some of its stations are among the leaders in their areas regardless of language.
The two companies spend very little advertising on each other's stations, so the ability to cross-promote their programming more is seen as one of the deal's benefits.
"The bigger synergy is what they can do selling to advertisers in a one-stop shopping environment," said Guzman & Co. analyst David Joyce. "They can coordinate promotions for advertisers in online, radio, TV and cable, and efficiently adjust where the money's getting spent."
NO REGULATORY PROBLEMS SEEN
Under terms of the deal, Univision is offering 0.85 of its class A common stock for each Hispanic Broadcasting share, or a premium of about 26 percent to Hispanic's 30-day average share price. The deal includes a $100 million breakup fee.
Hobson said he foresees no regulatory issues to prevent the transaction from closing by year-end, including any that relate to Univision's one-third ownership stake in radio rival Entravision Communications Corp.(NYSE:EVC - News) He said some stations in Dallas and Houston might need to be sold to satisfy regulators because of media cross-ownership rules.
"This combination is a very small piece of the overall advertising pie and the TV business and radio business have historically been viewed by the Department of Justice as distinct and separate markets," Hobson said.
Hispanic Broadcasting's shares bounced on the news, by $2, or about 8 percent, to $26.45 in midday trading on Wednesday, while Univision's stock dropped $6.50, or 17.3 percent, to $31.20 on the New York Stock Exchange.
Hispanic Broadcasting would become a wholly owned Univision subsidiary and its chairman, McHenry Tichenor, will lead the new Univision radio group, which will stay in Dallas.
A lawsuit accusing Hispanic Broadcasting and Clear Channel Communications Inc. (NYSE:CCU - News) of earlier antitrust violations was filed by rival Spanish Broadcasting System Inc. (NasdaqNM:SBSA - News) shortly after the Univision deal was announced.
Assuming "modest first-year synergies" of $13 million, free cash flow in 2003 would grow by 4 cents a share based on Wall Street's projections, Hobson said.
Univision shareholders will own about 73.5 percent of the combined company, and Hispanic Broadcasting shareholders 26.5 percent. Hispanic Broadcasting's two biggest shareholders, the Tichenor family and Clear Channel, have approved the deal, as has Univision's top shareholder, Chief Executive A. Jerrold Perenchio.
TARGETING HISPANICS
The Hispanic population grew 58 percent between 1990 and 2000, according to the most recent U.S. Census. Univision owns at least two stations in seven of the 10 U.S. cities with the highest Hispanic population. Hispanic Broadcasting owns 41 radio stations in those 10 cities.
The importance of reaching the Spanish-speaking audience was became clear when General Electric Co.'s (NYSE:GE - News) NBC TV network earlier this year completed the acquisition of Univision's closest rival, Telemundo.
Telemundo trails Univision by a wide margin, but NBC's programming know-how and its pull with advertisers is considered a potential threat to Univision's dominance.
Univision, which also runs cable station Galavision, the leading Spanish-language Web site and the top recording label for Latino music, launched a new television network, TeleFutura, in January.
Univision and Hispanic Broadcasting discussed a possible combination on and off for eight years, and this merger "just kind-of happened," Hobson said.
Tichenor said Hispanic Broadcasting's board considered "a number of alternatives," besides the Univision offer, but he did not elaborate.
UBS Warburg advised Univision and Credit Suisse First Boston advised Hispanic Broadcasting.
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Wednesday June 12, 1:26 pm Eastern Time Spanish Broadcast/Suits -3: Says Co Interfered With IPO
In the lawsuit, Spanish Broadcasting argues that before its 1999 initial public offering, Clear Channel's chief financial officer, Randall Mays, called two of Spanish Broadcasting's lead underwriters and tried to get them to withdraw from the offering.
After the IPO, Spanish Broadcasting claims, Clear Channel and HBC tried to depress Spanish Broadcasting's share price by limiting analyst coverage through "similar, continuing threats" to withhold business from the analysts' employers.
Clear Channel and HBC then improperly spurred institutional investors to sell their positions in Spanish Broadcasting, the company claims.
In addition, the accused companies allegedly tried to convince Katz Hispanic Media to breach its long-term contract as Spanish Broadcasting's sales representative in order to take on this role for HBC.
Finally, Spanish Broadcasting accused Clear Channel of trying to get around ownership limitations set by the Federal Communications Commission by having " parked" stations that it owns with other companies.
Hispanic Broadcasting (NYSE: HSP - News) owns the largest Spanish-language radio network in the U.S. , with 55 stations in 14 heavily Hispanic markets, including Los Angeles , New York , Houston and Miami , and had revenue of $241 million last year.
About three hours into regular trading, New York Stock Exchange-listed shares of Hispanic Broadcasting traded recently at $25.23, up 78 cents, or 3%, on heavy volume of 6.2 million shares.
Clear Channel's NYSE-listed shares were recently off $5, or 10%, at $44.80, also on heavy volume of 6.8 million shares.
Spanish Broadcasting shares recently traded at $13.06, up 56 cents.
Spanish Broadcast/Suit -2: Says Companies Drove Down Share Price
COCONUT GROVE, Fla. -(Dow Jones)- Spanish Broadcasting System Inc. is suing Hispanic Broadcasting (NYSE: HSP - News) Corp. and its largest shareholder, Clear Channel Communications Inc. , accusing the companies of interfering with Spanish Broadcasting's business to foster their goal of acquiring the company to eliminate it as a competitor of Hispanic Broadcasting .
In a press release Wednesday, Spanish Broadcasting said David Boies of the law firm of Boies, Schiller & Flexner LLP filed the lawsuit. The suit accuses Clear Channel and Hispanic Broadcasting of hurting Spanish Broadcasting's ability to raise capital, working to drive down Spanish Broadcasting's share price, impugning the company's reputation, making station acquisitions more difficult and interfering with business opportunities and contractual arrangements.
Boies gained notoriety by representing Al Gore in the 2000 presidential election dispute and defending Napster against the record industry.
Officials at Clear Channel and Hispanic Broadcasting weren't immediately available for comment.
News of the lawsuit comes on the same day as a Wall Street Journal reports that Univision Communications Inc. (UVN) is in talks to buy Hispanic Broadcasting, or HBC, for about $3.5 billion in stock. Should the deal went through, Clear Channel, which holds a 26% stake in HBC, would end up with 7% of Univision's stock.
Univision, which has one of the broadcast industry's most richly priced stocks, outbid Spanish Broadcasting, which made a run at Hispanic Broadcasting , and NBC's Telemundo, the No. 2 Spanish-language TV network after Univision.