By Frank Ahrens Washington Post Staff Writer Thursday, June 13, 2002; Page E01
Univision Communications Inc. and Hispanic Broadcasting Corp. announced a $3.5 billion all-stock merger yesterday, combining the nation's largest Spanish-language television and radio companies to create the first Hispanic media giant.
Already a substantial media group, Los Angeles's Univision owns the Univision and TeleFutura television networks as well as 50 television stations, Galavision cable network, Univision Music Group and Univision Online.
Now, with the addition of Dallas-based Hispanic Broadcasting's 55 radio stations -- positioned in 13 of the top 15 Hispanic markets in the United States -- the combined company will reach most of the nation's 35 million Hispanics, the economy's fastest-growing market.
"Everybody keeps commenting that this is the 800-pound gorilla," said Alfredo Alonso, president of rival Mega Communications, which owns 15 radio stations and will compete against the new Univision in New York City. "You can go to advertisers with one-stop shopping. This will increase the market value of each station."
The deal is a micro version of the mammoth media mergers of the past few years, such as the $183 billion marriage of America Online Inc. and Time Warner Inc., and Vivendi SA's $30 billion purchase of Seagram Co.'s Universal Studios and Music Group. These companies have seen their stocks dive in recent months as promised payoffs of corporate "synergy" have failed to materialize.
Univision and Hispanic Broadcasting were careful yesterday to project only "modest" synergy revenue gains.
The deal will enable Univision to offer advertisers packages that include television, radio and the Internet. Hispanic Broadcasting will promote its radio stations and personalities on Univision television, said McHenry T. Tichenor Jr., Hispanic Broadcasting's chairman and chief executive, during a conference call.
"This is an unprecedented opportunity to efficiently sell products and services to Hispanics through multiple channels," said Ray Rodriguez, president of Univision Networks. "This is about taking more money away from the English-language media."
The proposed merger demonstrates the growing power of Spanish-speaking consumers, industry experts said.
"This is a market that's about to explode," said Ingrid Otero-Smart, president of the Association of Hispanic Advertising Agencies. In last year's dismal advertising climate, for example, expenditures on advertising aimed at Spanish speakers rose from 2.7 percent to 3.2 percent of total advertising dollars spent, Otero-Smart said.
Under the merger agreement, which has been approved by the boards of both companies, each share of Hispanic Broadcasting stock will be exchanged for 0.85 shares of Univision Class A stock. The exchange is valued at $3.52 billion based on Univision's Tuesday closing price of $37.70.
Hispanic Broadcasting officials said when the deal is completed by year's end, Univision stockholders will own about 74 percent of the combined company, and Hispanic Broadcasting shareholders the rest.
"Univision's entrance into [the radio] business will provide us with revenue enhancement and earnings diversification as well as significant growth opportunities through coordinated sales and promotional efforts," said A. Jerrold Perenchio, Univision's chairman and chief executive. "In addition, Hispanic Broadcasting has essentially no debt, which will strengthen Univision's balance sheet."
In Washington, a Univision affiliate, WMDO, Channel 30, in Silver Spring, is owned by Entravision Communications Corp., a Santa Monica, Calif.-based media company in which Univision owns a stake. Hispanic Broadcasting owns no radio stations in the region.
Hispanic Broadcasting already is part of a huge media conglomerate: 26 percent of its stock is owned by Clear Channel Communications Inc., the nation's largest radio chain with more than 1,200 stations. Clear Channel will own about 7 percent of the combined company.
Though Spanish speakers represent a small portion of the overall U.S. market, they are its fastest-growing. At 13 percent of the total U.S. population, Hispanics accounted for 40 percent of the total population growth over the past decade, according to U.S. Census figures. The group is expected to make up 25 percent of the nation's population by 2050.
Hispanic Broadcasting officials estimate that Spanish-speakers will account for $1 trillion in spending by 2005. Recognizing the need to penetrate this consumer group, General Electric Co. -- which owns NBC's television unit -- bought Telemundo Communications Group Inc., Univision's rival television network, in October. "It was an acknowledgment that they could not try to do it on their own," said Otero-Smart. "They needed help to get a piece of this pie."
The Univision and Telemundo deals were made possible in part by the results of the 2000 census, which showed strong growth across Spanish-speaking demographics. "Advertisers now see the potential," Otero-Smart said.
Hispanic Broadcasting shares finished up $1.55 at $26 in New York Stock Exchange trading yesterday. Univision shares fell $5.84, to $31.86.
One Wachovia Corp. analyst on yesterday's conference call said: "We have Univision bond holders running around the lobby screaming 'Goooaaaal!' " -- a reference to popular Univision soccer commentator Andres Cantor's scoring call.