KMEX-TV, Other Stations to Be Sold to Non-Latinos

The owner of KMEX-TV in Los Angeles and four other major Spanish-language television stations said Monday that it has agreed to sell the stations to Hallmark Cards and First Capital Corp. of Chicago for $301.5 million.

The sale would mark the transfer of the nation’s largest group of Spanish-language television stations into the hands of non-Latino owners. Although Hallmark and First Capital say they are committed to continuing the stations’ Spanish-language format, Monday’s agreement immediately drew criticism from two unsuccessful groups of Latino bidders who contend that the stations should be owned by Latinos who would ensure the future of Spanish-language broadcasting.

Spanish International Communications Corp., which is selling the stations in part to appease the Federal Communications Commission, will receive $294.5 million in cash. In addition, Hallmark and First Capital Corp. will assume $7 million in Spanish International’s debt.

The transaction must have FCC approval, which the company expects early next year, according to Danny Villanueva, president of KMEX and senior vice president and a director of Spanish International. Ronald Fein, a lawyer selected by shareholders to oversee the secret bidding process, said the company expects challenges to the transfer of the stations’ licenses.

Besides KMEX, the other major stations in the deal are KFTV-TV in Fresno, WLTV-TV in Miami, WXTV-TV in Paterson, N.J., and KWEX-TV in San Antonio, Tex. It also includes low-power stations in Bakersfield, Philadelphia, Hartford, Conn., and Austin, Tex.

The company decided to sell in hopes of removing objections by an FCC administrative law judge who in January ordered that the stations’ licenses be revoked, saying the stations were secretly controlled by foreign interests. The FCC subsequently agreed to drop its challenge because of the proposed sale.

Judge John H. Conlan ruled that the family of Mexican media baron Emilio Azcarraga effectively controlled the stations through a combination of program sources and finances, although Azcarraga’s direct ownership did not exceed the 20% limit permitted to foreign investors in U.S. broadcast properties.

Another factor in Spanish International’s decision to sell the television stations was a bitter fight among shareholders that was ignited by a 1976 lawsuit over company profits and policies. A group of shareholders accused another group of profiting unfairly through the second group’s ownership of Spanish International Network, which provides programming for the Spanish International Communications Corp. stations.

Condition of Sale

As a condition of the sale to Hallmark and First Capital, the FCC said that Spanish International could require no more than a two-year commitment to Spanish-language broadcasting, Fein said.

Hallmark Chief Executive Irvine O. Hockaday has indicated “that he is going to maintain the level of commitment (to the Latino community) that we have maintained . . . and indeed increase it, because we will have a stronger financial base,” Villanueva said. “They have told us that their commitment is long-term.”

But Latino investors whose bids for the stations were rejected expressed doubt that the new owners would continue Spanish-language programming beyond the two-year requirement.

Tirso del Junco, a Los Angeles surgeon who led a group of prominent Latinos in a $260-million bid, said the group will “scrutinize very, very closely” the proceedings before the FCC to transfer the stations’ licenses.

Community Concern

“We are going to do everything humanly possible to assure the Hispanic community that Hispanic broadcasting will continue,” Del Junco said. “I am very sorry that they (Spanish International) thought to exclude Hispanic entrepreneurs from this venture.”

Alhambra businessman Enrique (Hank) Hernandez Sr. said he is “disappointed” that the $295-million bid made by his family and producer Norman Lear was rejected.

“This appears to be a tremendous setback for the entire Hispanic community and for the prospect of increased minority ownership of broadcast properties,” he said. “I’m disappointed for all of us, and I’m talking about Hispanics across the country.”

Some bidders, who asked not to be named, said they are unhappy with the secret bidding process, contending that bidders were not treated equally.

More Than 10 Bids

There were more than 10 bids for the properties, Villanueva said. Some of them were larger than the winning Hallmark-First Capital bid, according to Fein, but were rejected because of possible financing difficulties.

A committee of Spanish International officials and shareholders was unable to agree on a winning bid, Fein added, so it selected a list of finalists and presented it to U.S. District Judge Mariana R. Pfaelzer on Friday. Pfaelzer, who is presiding over the stockholders’ suit, selected the Hallmark-First Capital proposal.

The purchase would be the first direct investment in television by Hallmark, the world’s largest greeting card publisher. Privately owned Hallmark, which has revenues of more than $1.5 billion, holds a 30% stake in SFN Cos. of Chicago, which in turn owns 28% of KVEA-TV, another Spanish-language station in Los Angeles.

A Hallmark spokesman said it is not clear whether the company would need to divest that interest.

Diversification Effort

The proposed purchase is part of Hallmark’s attempts to diversify, the spokesman said, adding that the company has no current plans to go into other broadcasting ventures. “We certainly remain committed to our core businesses,” he said.

First Capital, the venture-capital subsidiary of First Chicago Corp., also has minority ownership interests in television, cable and radio companies. First Chicago owns First National Bank of Chicago.

Hallmark and First Chicago will each put up $37.5 million in cash and will finance the remainder with notes of a new company that will own the television stations.

The purchase price of the stations hinges on whether they make their 1986 profit and revenue objectives, which the company is well on its way to meeting, Fein said.

Fein declined to specify those objectives, but sources familiar with the stations say that 1986 gross revenues are projected at $100 million and operating income is projected at $20 million.