Suitors Stay Tuned for Univision’s Next Move

Spanish-language broadcasting has a newfound allure that television industry executives and analysts are calling “Latin envy.”

General Electric Co.’s NBC network last month outbid its media rivals with a $2-billion offer for the Spanish-language television broadcaster Telemundo.

Within days of losing out to NBC, entertainment colossus Viacom Inc. was knocking on the door of the largest Spanish-language broadcaster in the United States, Los Angeles-based Univision Communications Inc., with a takeover proposal. It was at least the second time this year that Viacom, which owns the CBS and MTV networks, expressed an interest

AOL Time Warner Inc., Walt Disney Co. and others also have been sniffing around Univision, industry insiders say. Disney Chief Executive Michael Eisner told the Financial Times last month that his company, which owns ABC, would like to enter the Spanish-language market. But any acquisition of Univision would come down to a question of “how much,” Eisner said.

Analysts say the acquisition of Univision would come at a steep price.

“Anyone who is going to acquire Univision is going to pay a premium over the current equity value,” said David Joyce, a senior analyst with Miami investment banking firm Guzman & Co. “They are strong financial players and they have no reason to sell. They can hold out until the market turns around. There is no fire sale.”

Moreover, Univision’s 70-year-old chairman and chief executive, A. Jerrold Perenchio, isn’t willing to sell until the company’s stock emerges from the doldrums that have depressed the value of most media stocks, industry experts said.

Univision closed Friday at $26.68 on the New York Stock Exchange, down from a 52-week high of $52.25.

Perenchio and other executives at Univision declined to be interviewed for this report. Perenchio has a policy of not speaking to the media, and Univision employees are hesitant to talk to reporters without his permission. One executive was fined $25,000 for being quoted in a publication, according to a person familiar with the incident who asked not to be identified.

The price tag on a Univision acquisition could be as hefty as $12 billion if the same multiplier is used as in the NBC-Telemundo deal, analysts said. Several media executives said privately that is too much for a company with a market capitalization of about $6.8 billion. Earlier this year, the company was valued at about $10 billion.

But even the current value is staggering considering that Univision fetched $550 million in 1992, when Perenchio, Grupo Televisa of Mexico and Venevision, Venezuela’s largest television network, picked up the broadcast network from Hallmark Cards Inc., the greeting card company that lost millions during the four years it owned Univision.

Univision now is the nation’s premier Spanish-language television network, commanding 80% of the market with 26 television stations and 32 broadcast affiliates. The company owns Galavision, which is available to 25 million cable subscribers, an Internet portal and a newly minted music label with Disa Records of Mexico. Univision plans to launch a second television broadcast network in January.

Univision already has surpassed the major networks in several big-city markets. During the July ratings period, Univision stations in Los Angeles, New York, Miami, Houston and Dallas hauled in higher prime-time ratings in the coveted 18-34 age category than their ABC, CBS, NBC and Fox counterparts. Univision’s KMEX-Channel 34 in L.A. averaged--in all time slots--more viewers age 18-49 than any other station in Los Angeles.

As NBC executives were celebrating their purchase of Telemundo on Oct. 11, Perenchio, a former Hollywood agent and boxing promoter, sent a note to NBC President Andrew Lack that contained a good-natured dig: “I looked around for a white flag to wave but I couldn’t find one,” according to Lack.

Perenchio, whose wealth recently was estimated at $2.5 billion by Forbes magazine, won’t be needing one, industry experts say.

“The bulk of all the other media companies are really struggling in this advertising environment,” said James Marsh, senior research analyst with investment banking firm Robertson Stephens. “But Univision is growing the top line, and that’s impressive.”

Although most TVnetworks watched their advertising revenues shrink, some by as much as 15%, during this spring’s advance advertising sales, Univision made strides. The company’s sales increased by 10%, to nearly $550 million, said David Miller, an analyst with Sutro & Co. in Los Angeles.

Univision also added big-name clients during the advance sales, including Wendy’s, Nestle, Glaxo SmithKline, American Airlines, Cingular, Subway and Saturn.

Advertisers increasingly have embraced Spanish-language media since the 2000 census showed there are more than 35 million Latinos in the U.S., and that Latinos, who make up 13% of the U.S. population, will become the largest ethnic minority group within a few years.

“You do the arithmetic and you have this large percentage of the population that is growing faster than the rest of the population,” Marsh said. “And so everyone wants a piece of the action.”

Peter Roslow, president of Roslow Research Group in New York, which studies Latino marketing trends, agreed.

“The census really raised the visibility and the clout of the marketplace,” Roslow said. “You’ve got this fast-growing second-generation group of Hispanics, and a fast-growing first-generation group of immigrants.”

A survey by Strategic Research Corp. of Miami shows that Latinos watch more television than the general population: an average of 4.4 hours a day for Latinos and 2.9 hours a day for non-Latinos. Nielsen Media Research also discovered that Latinos spend more time watching programs in English than the Spanish-language shows on Univision, Telemundo or Galavision.

Univision will try to grab this more fickle bilingual audience when it launches its second network, Telefutura, on Jan. 14. Univision is building Telefutura with 13 stations acquired from USA Broadcasting, a $1.1-billion deal to be completed early next year.

“It’s going to be a major challenge to launch Telefutura,” Marsh said. “Inevitably, they are going to be fragmenting themselves. By doing this you run the risk of not increasing your overall viewership but, in effect, duplicating your costs.”

Univision executives told analysts last summer that they expect Telefutura to peel off viewers from the established networks: 25% of Telefutura’s audience will come from Univision’s original network, 25% will come from rival Telemundo and the other half will be bilingual Latinos who typically watch English-language programs.

Univision plans to stock Telefutura’s evening schedule with an ESPN-like sports program, dubbed movies and variety shows. The new network, which has a programming budget of almost $100 million for next yeara fourth of the budget for Univision--will carry daytime soap operas, called telenovelas . But Telefutura won’t air at night the novelas that have become Univision’s trademark and revenue engine.

Grupo Televisa, which owns 6% of Univision and is the world’s largest producer of Spanish novelas , has refused to give Univision permission to show its programs on the new network. Televisa provides Univision’s most sought-after programming: More than 40% of Univision’s advertising revenue comes from Televisa novelas , according to filings with the SEC.

But Televisa and Univision have been squabbling for a year over the terms of their 25-year programming deal signed in 1992. Televisa, which gave birth to the Univision network in 1961 with its purchase of a San Antonio television station, wants to increase its stake in Univision. However, U.S. regulations restrict foreign ownership of broadcasting companies to 25% or less, a rule that forced Televisa to divest much of its stake in Univision in 1986. Still, Univision has a lock on all Televisa programming for its primary network until the contract expires in 2017.

Tensions with Televisa could come back to haunt Univision if a larger company tries to acquire the network. Perenchio owns nearly 19% of Univision’s stock and he has 69% of voting rights in the company. Venevision, the Venezuelan broadcaster, owns 18% of Univision and Televisa, with 6%, has blocking rights in certain types of mergers, analysts say

“There is no other play in Spanish-language television,” said Gordon Hodge, media analyst with Thomas Weisel Partners in San Francisco. “If you are a big media company and you’re looking for better reach into this fast-growing demographic, you don’t have many choices. These companies are a scarce commodity right now.”

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Univision Communications Inc.

Company divisions:

* Univision Television Group with 26 television stations, Univision Network

* Galavision cable channel

* Univision Online

* Univision Music Group, includes a 50% interest in Disa Records of Mexico

* Telefutura, company’s second television network, scheduled to launch in January

Programming:

* About one-fifth of 2000 advertising revenue came from three shows: “Cristina,” a talk show hosted by Cristina Saralegui; “Sabado Gigante,” a Saturday night variety show hosted by Mario Kreutzberger; and “Primer Impacto,” a news magazine program.

Vitals

* 2000 Sales: $863.5 million

* Net income: $116.9 million

* Employees: 2,260

* Market value: $6.8 billion

* Chairman and CEO: A. Jerrold Perenchio

*

Times staff writer Sallie Hofmeister contributed to this report.