Spanish-Language Univision to Buy USA Broadcasting

Univision Communications Inc., parent of the country’s top Spanish-language television network, said Thursday it will buy USA Networks Inc.’s broadcast group for $1.1 billion.

The deal gives Univision second stations in a number of rapidly growing Latino markets and entrenches its already solid lead over newly aggressive competitors. For Barry Diller’s USA Networks, however, it marks a disappointing bow-out from television broadcasting and the abandonment of efforts to build his second-tier stations into a competitive entity.

“In hindsight, we were probably overly ambitious in attempting to develop these television stations locally,” Diller, the USA Networks CEO and chairman, said in a statement Thursday. “We still believe localism is a sound concept, but to build stations in 16 markets from a standing start in a world of duopoly and consolidation became an impossibly difficult task.”

Univision will purchase 13 full-power stations and a minority interest in four more. It already owns and operates 19 stations and 33 affiliate stations and also owns the Galavision Spanish-language cable network.

USA Networks also owns several cable channels, including USA and Home Shopping, as well as Ticket Master.

The sell-off of USA Broadcasting will head off an expected $55-million loss next year, analysts said. It also will put cash in USA’s pocket that Diller can use to bolster core assets or purchase Cablevision System Corp.’s American Movie Classics or Bravo channels, which are rumored to be on the block.

“Since they’re not part of any particular network, it was very difficult for them to find their place in the market,” said Salomon Smith Barney analyst Niraj Gupta.

Los Angeles-based Univision, however, is uniquely positioned to do just that. The Univision network has amassed an 84% prime time audience share among Spanish-language households, said Chase H&Q; analyst Vinton Vickers.

The new station group, which could ultimately function as another network, will allow the broadcaster to target different audiences simultaneously in seven of the eight top Latino markets.

“You might be showing a show that skews to an older demographic on one, one that skews to younger on the other, and cross-promoting them,” Vickers said.

Univision officials would not comment on the programming strategy for the stations, which will be taken over on a rolling basis beginning next year, as Diller’s Home Shopping Network channels make the transition to cable.

While Univision holds a more than solid lead in the market, the competition has gotten stronger in recent months.

In September, Mexico’s No. 2 network, Television Azteca, announced its push into the U.S. market with Azteca America. But the nascent network has had trouble obtaining stations in key markets. With Diller’s group of stations now swallowed by Univision, Azteca’s task becomes all the tougher.

Second-place Telemundo Network is in talks to acquire independent station KWHY in Los Angeles for more than $200 million, a deal that would have made it the first Spanish-language network to own two stations in one market. Federal regulators only recently began allowing such so-called duopolies.

The USA Broadcasting acquisition instantly puts Univision ahead in the game. It also leaves few station groups at the dance without a partner. Earlier this year, News Corp. bought Chris-Craft Industries Inc.’s stations, and Viacom Inc. bought CBS.

“Diller was stuck trying to figure out whether he would go it alone, find a partner somewhere else or sell it,” Vickers said. The sale “takes a money-losing operation off his books. It gives him a billion dollars to go invest in other operations or buy back stocks.”

Univision Communications Executive Vice President Andrew Hobson said Thursday that Univision had approached USA Networks when duopoly rules were changed last year, but Diller wanted to operate the stations independently. A few weeks ago, he “notified our chairman [A. Jerrold Perenchio] of his change in strategy, and we acted quickly to secure this opportunity for the benefit of our shareholders.”

The new stations are in Los Angeles, New York, Chicago, Philadelphia, Austin, Miami, Dallas, Atlanta, Tampa, Houston, Cleveland and Orlando. Univision will also acquire USA Networks’ minority interest in full-power stations in San Francisco, Denver, Washington and St. Louis.

Univision shares closed up $1.19 at $37.50 on the New York Stock Exchange and USA Networks shares closed up $1.63 at $18.50 Thursday on Nasdaq.