Viacom eyeing possible buy of Telemundo

Viacom Inc.Telemundo (tv network)Mergers, Acquisitions and TakeoversEntertainmentTelevisionMexicoCompanies and Corporations

Viacom Inc. is exploring the possibility of acquiring Telemundo Communications Group Inc., the nation's second-largest Spanish-language television broadcaster, according to three sources close to the companies. The talks are very preliminary, these sources say, although the companies have exchanged certain information in recent weeks.

The discussions, however, underscore the rising value of Telemundo and Viacom's keen interest in owning a second station in key markets as well as in expanding its demographic reach for advertisers.

Miami-based Telemundo is owned by Sony Corp. and AT&T Corp.'s Liberty Media Corp. in a complicated partnership that includes other shareholders. Two sources close to Telemundo say Sony and Liberty are looking at a price of more than $4 billion for the company.

Neither Viacom nor Sony would comment. Telemundo could not be reached for comment. Talks between Viacom and Telemundo were first reported in the Financial Times.

New York-based Viacom, the nation's largest TV broadcaster, generates more revenue from advertising -- about $12.5 billion -- than any media company other than AOL Time Warner Inc. It's particularly attracted to the Latino advertising market, which is growing three times faster than the more established English-language market. Viacom has already considered a bid for leading Spanish-language broadcaster Univision Communications Inc. but has been discouraged by Univision's high price tag and the likely regulatory hurdles because of overlap in some U.S. markets.

Viacom Chief Operating Officer Mel Karmazin has been seeking to raise advertising rates for demographic groups that he says Madison Avenue discriminates against. For instance, after Viacom's recent purchase of Black Entertainment Television, he said there was no economic justification for the lower rates advertisers were paying to air their ads on the channel, compared with other Viacom properties such as MTV and VH1.

Viacom has been searching for a station acquisition since it lost out in the eleventh hour to News Corp. in its bid to acquire Chris-Craft Industries, which would have given Viacom two stations in six of the top markets. On Friday, Viacom shares ended at $53.90, down 28 cents, on the New York Stock Exchange.

But Telemundo has held discussions about a merger or a strategic alliance with numerous potential suitors, including Spain's Telefonica, Walt Disney Co., Hispanic Broadcasting Corp. and Mexico's Televisa. Last year, Disney and Telefonica were discussing a joint takeover that would have valued Telemundo at about $2 billion.

Under the stewardship of President James MacNamara, Telemundo has enjoyed significant ratings momentum, closing in on Univision's market dominance. Though Univision controlled more than 80% of Spanish-language viewership when Sony and Liberty took over Telemundo in 1998, its lead has dropped to 70% as Telemundo improved its share to 30% in the last year.

As a result, the owners have put a price on Telemundo of more than $4 billion for an outright sale to a company such as Viacom. Sources say the partners would be willing to lower the value to $2.5 billion to $3.5 billion in a merger with a company such as Hispanic Broadcasting in which they would retain an interest.

The nation's 11th-largest radio broadcaster, Hispanic Broadcasting owns 46 radio stations, including five in Los Angeles, and has a value on Wall Street of $2.6 billion. The cross-promotional strength of radio and television together could give the merged companies clout in the Latino market similar to that of Viacom's CBS, which owns billboards, TV and radio stations, in the English-speaking market.

Telemundo also is trying to capitalize on the rising tensions between Univision and its partner, Televisa, Mexico's largest producer of programming. Televisa wants higher rates now that Univision plans to launch a second network on stations it purchased recently from USA Networks Inc. Telemundo apparently is using the stalemate as a negotiating opportunity.

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