Who could bid for Univision?
The answer: Everyone who want to be a bigger player in the US media landscape. Speculation immediately focused on CBS, Time Warner, GE/NBC Universal and News Corporation. All except Time Warner would, at first glance, face ownership limit problems at the FCC - - not to mention that Time Warner is battling a break-up effort by Carl Icahn. But that is not an insurmountable problem. Even before the Univision auction rumor became fact, Goldman Sachs analyst Mark Wienkes was out with a list of ways that big media companies could get around the FCC ownership cap problem.
"Regulatory hurdles and a higher acquisition multiple are likely not insurmountable."
There are of a number of potential structures in which some of the current television station owners could employ so that they can acquire Univision while maintaining compliance with current FCC regulations, driving higher returns at Univision, and reducing what may seem to be a full acquisition multiple to a reasonable level. While this list is not exhaustive, it provides a sense of the range of possibilities companies could explore.
1. Buy Univision and place the television stations in a separate vehicle owned by private equity firms. A company close to or at the current 39% ownership cap could partner with a private equity shop to avoid the limitations present by the cap. Specifically, said company could negotiate the cash flows of the network and the station group such that the private equity firm would receive a 'bond-like' return on its investment and the company at or near the cap would remain compliant with FCC regulations. The stations that overlap could work out shared services agreements to leverage their common infrastructure and overhead while the networks would retain a lot of the risk and reward of the combined economics.
2. Exchange voting interests for non-voting interests. For CBS (U/N, covered by Anthony Noto) specifically, some have postulated that Chairman Sumner Redstone might be able to exchange his voting shares in CBS for non-voting shares, thereby not owning a majority or controlling 'attributable interest' in the station group, and allowing his other media company to acquire Univision. Similar shared services or cooperative agreements, as mentioned in example #1, could facilitate achieving synergies. This company could then pursue a strategy such as listed in #3. Anthony Noto who covers both CBS and Viacom puts a very low probability on such an outcome.
3. Morph Univision's broadcast network into a cable network. For the larger media players that own a network and station group with retransmission consent rights, acquiring Univision's network and stations could provide an opportunity to transition Univision's primary network into a cable network. This would take several years as around 60% of Univision's network television viewing is still consumed via over-the-air broadcasts. That said, over a multiple year period and ahead of the February 2009 mandated return of the analog spectrum, retransmission consent rights could be used to gain access to the cable and DBS systems and help negotiate affiliate fee revenues, which would add another revenue stream and likely significantly improve margins and cash flows at Univision.
4. Start a new network or combine assets to strengthen Telefutura. Either in conjunction with #3 above, or using stations that recently learned they are risk of losing their UPN or WB affiliation in Fall 2006, an acquirer could start a new broadcast or cable network focused on the Hispanic youth market - perhaps using a 'Spanish-English mix' programming angle. Such a network could be a "new and improved" Telefutura or a new network and conceivably tie in additional programming from Televisa and sate that company's current issues with Univision as well.
5. Involve Televisa and private equity in a new entity with current or prior management. There are a number of experienced industry veterans that could conceivably be interested in running a 'new' Univision, funded by private equity firms. Alternatively, some of the current management and/or Televisa CEO Emilio Azcarraga could offer guidance to a private equity funded bid. (We believe former Chairman and CEO of Hispanic Broadcasting Company McHenry 'Mac' Tichenor still has a non-compete in place, but that former Univision CFO Jeffrey Hinson's non-compete has lapsed.) We have been of the position that Televisa's legal wranglings with Univision are more of a fight to attain higher rights fees and an effort to insure they are not kept from having a 'seat at the table' in any potential sale than a fight over programming usage violations."
Good Morning - Gain a personal edge on today's business day. Are you reading this from a forwarded email?
