Disarray in Auction of Univision

The auction for Univision Communications Inc. appeared to be in jeopardy late Wednesday, when a team of investors that included Los Angeles billionaire Haim Saban withdrew an offer it had made earlier in the day, according to a member of the group.

The consortium bid $35.50 a share, or nearly $11 billion, for the nation’s largest Spanish-language media company but was told the price was too low, the person on the bidding team said.

However, a source close to Univision Chief Executive A. Jerrold Perenchio disputed that account, saying the company had neither accepted nor rejected any offers.

The high-stakes brinkmanship puts the auction in question and could leave Perenchio without any bids at all. Perenchio, known for being a shrewd negotiator, is prepared not to sell the company if he doesn’t get the price he wants, said a person with knowledge of his strategy.

“Now he’s sitting with no bids,” a person close to the discussions said.

Perenchio had originally set a deadline of Tuesday afternoon, but that came and went.

The lack of a bidding war -- at least so far -- brought the price of Univision stock down 4% on Wednesday on speculation that the company could fetch substantially less than initial estimates of $40 a share. The shares closed down $1.56 at $33.84.

The day had already been full of drama. An investor group led by Mexican broadcasting behemoth Grupo Televisa, which had been considered the front-runner, found itself in disarray with the sudden exit of two major partners -- Kohlberg Kravis Roberts & Co. and Blackstone Group.

The loss came on the heels of Tuesday’s departure of yet another major partner: Carlyle Group.

Televisa is left with three potential co-investors: Bain Capital, Bill Gates’ Cascade Investment and Venevision Investments, controlled by Venezuelan media magnate Gustavo Cisneros.

The Televisa consortium had planned to regroup this morning to restructure its bid and submit it by the end of the day, according to knowledgeable sources. Cascade had been expected to increase its $1-billion share of the offer to help make up for the hole left by the departures.

Televisa had wanted to offer a high enough price to clinch the deal, but that led to discord with its private equity partners. Even $34 a share was considered too rich for Carlyle, and that was before the Saban offer of $35.50 a share. KKR and Blackstone also bailed out of the deal because they deemed the price too rich.

The Saban group learned that its bid had been rejected during a conference call Wednesday evening with Perenchio, Univision’s 75-year-old controlling shareholder. Saban, who made his fortune on the Mighty Morphin Power Rangers cartoons, is joined by Texas Pacific Group, Providence Equity Partners, Madison Dearborn Partners and Thomas H. Lee Partners.

To be sure, Saban might not be out of the bidding. Some people close to the situation cautioned that both Saban and Perenchio could be posturing to gain the upper hand in the talks.

Televisa executives declined to comment, as did representatives of Univision and Saban.

Some had speculated that the Televisa group was intentionally stalling for leverage. Televisa’s 38-year-old chairman, Emilio Azcarraga Jean, has had a rocky relationship with Perenchio, Univision’s controlling shareholder. Azcarraga stepped down from the Univision board a year ago.

Televisa, which owns 11% of Univision, provides much of the U.S. network’s programming under an exclusive, long-term agreement that Perenchio made with Azcarraga’s father. Televisa-produced telenovelas drive Univision’s strong prime-time ratings. Over the years, Azcarraga has tried unsuccessfully to renegotiate, seeking higher royalty payments from Univision.

Several analysts continued to predict Wednesday that Univision would eventually sell for $36 to $38 a share.

Recent changes in the financial markets, particularly higher interest rates on high-yield bonds, which would probably be used to fund the deal, have made a purchase more expensive for private equity firms. That has led them to scrutinize the deal all the more, especially the debt load they would be willing to take on and the rate of growth they expect from Univision.

The company, which includes two Spanish-language broadcast networks, a cable TV channel, 69 radio stations, four record labels and an online unit, already dominates its market. But with more Latinos in the U.S. now born here rather than abroad, some experts say the future of Spanish-language media might be limited because subsequent generations are likely to be more comfortable consuming their media in English.

Univision’s advertising revenue for the World Cup, which traditionally draws an enormous audience, did not meet analysts’ expectations. Before the news broke that two more Televisa partners had jumped ship, Merrill Lynch media analyst Jessica Reif Cohen said the group appeared to have the edge as “the most motivated bidder in the auction.”

“Televisa’s role as the main supplier of Univision’s programming gives it an inherent advantage, as it provides certainty that the programming licensing agreement will remain in place,” Reif Cohen wrote in a research report.

But if Televisa’s group prevails, federal regulators will have to analyze the structure of the deal to ensure that it does not violate rules preventing foreign citizens from owning more than 25% of a broadcasting company.

One of the main selling points for Saban and his group was that the parties are based in the United States, Reif Cohen said.

In addition to the sale price, the buyer will have to assume Univision’s $1.4-billion debt.