Telemundo Agrees to Be Acquired by Sony, Liberty

In a move that should significantly increase its programming and distribution clout, Telemundo Group--the second-largest Spanish-language television network in the U.S.--said Monday that it has agreed to be acquired by a co-venture that includes two deep-pocketed entertainment conglomerates, Sony Pictures Entertainment and Liberty Media Corp.

The deal, subject to FCC and shareholder approval, is valued at about $539 million. Other partners in the venture are Apollo Management and Bastion Capital Fund.

Telemundo, which owns stations or has affiliates in 60 U.S. markets, is seeking to compete with Los Angeles-based Univision, the much stronger No. 1 Spanish-language network. Telemundo is based in Miami.

The market at stake is large and growing, with Latinos making up an estimated 10% of the U.S. population and their numbers increasing at five times the rate of the overall population. More than $1 billion was spent on marketing to Latinos in the U.S. last year in all media; half of that was on television.

“Spanish-language media is going to enjoy a boom in the next few years,” said Porter Bibb, a media investment banker with New York-based Ladenburg Thalmann & Co. “Telemundo’s biggest problem has been lack of capital.”

While the two companies’ market penetration figures are similar--Telemundo reaches 85% of U.S. Latino households and Univision reaches 90%--Telemundo has only about an 18% market share, reflecting much weaker programming.

Univision dominates the list of top-rated Spanish-language programs. Its Los Angeles affiliate, KMEX, is the most powerful Spanish-language station in the U.S., and home to a 6 p.m. newscast that frequently beats all newscasts, in English or Spanish, in the ratings for its time period. Felix Gutierrez, San Francisco-based executive director of the Freedom Forum and a frequent commentator on Spanish-language media, said the deal is a signal that “Spanish-language television has not yet peaked. This appears to be an investment in the future.”

He added that he hopes Sony will be able to tap into the Latino creative community in the U.S. to produce strong original programming, rather than just dubbed programs or imports from Latin America.

Jeff Sagansky, co-president of Sony Pictures, said that that would be the case. “The key to success in this venture will be our ability to tap into a vibrant Spanish-speaking creative community,” he said in a statement.

Telemundo recently hired Lazard Freres to seek strategic partners that would allow the company to develop programming and distribution. With this deal, the company appears to get both: Sony should be able to provide high-quality Spanish programming, and Liberty, which is controlled by Englewood, Colo.-based Tele-Communications Inc., the nation’s largest cable company, should help fill gaps in distribution.

The deal will be Sony’s entree into domestic broadcasting. Sony currently produces Spanish-language programs for distribution via satellite and HBO’s Latin American service; some of Sony’s shows for Telemundo reportedly will be based on existing Sony shows. Current Sony Pictures hits on U.S. TV include “Mad About You” (NBC) and “The Nanny” (CBS). Game shows “Jeopardy” and “Wheel of Fortune” also have been big moneymakers for Sony.

Due to network ownership restrictions on Sony and Liberty--foreign ownership in the case of Sony and cable/broadcast cross-ownership on the part of Liberty--just more than 50% of Telemundo’s equity will be owned by Century City-based Bastion Capital and Apollo Management.

Investor Leon Black is founding partner of Apollo Management. He has been chairman of Telemundo since 1994.

Bastion, headed by ex-football player and L.A. Galaxy soccer team owner Daniel Villanueva, is the U.S.’ largest Latino-owned private equity fund. Bastion already holds a nearly 20% stake in Telemundo, and Apollo has about 15%.

Telemundo shares rose $2.06 to close at a 52-week high of $41.44 on Nasdaq.

This report includes information from Bloomberg News.