Univision Communications and former part owner Grupo Televisa have resolved their squabble from Univision’s 2006 going private transaction, in which a group including Televisa was outbid by the current owners who paid $13.7 billion. Televisa will once again be part of the ownership at Univision, acquiring a 5% equity stake with an option to greatly increase that in the future.
The deal announced Tuesday (9/5) ends a rocky period in the companies’ relationship during which the two had battled over Univision’s rights to programming from Mexico’s Televisa, its main supplier of primetime programming, and what payments were required under the long-term contract. That litigation was settled out of court in January 2009.
Now the two are deepening their programming partnership and Televisa will once again have representatives on the Univision board of directors. Under the terms of the binding agreement, Televisa will invest $1.2 billion in Univision, and contribute its 50% interest in TuTV, for a 5% equity stake and debentures convertible into an additional 30% equity stake of Univision in the future, subject to existing laws and regulations, and have the option to acquire an additional 5% equity stake in Univision.
Univision will issue new shares and convertible debentures to Televisa under the deal. In connection with the investment, three Televisa representatives will join the Univision Board of Directors, which will increase to 20 members.
“Televisa’s investment both strengthens Univision’s balance sheet and enhances Univision’s financial flexibility,” the joint announcement stated.
Univision will expand its Program License Agreement (PLA) with Televisa. Under the newly amended PLA, in addition to an expanded suite of exclusive US Spanish-language broadcast rights, Univision will now have exclusive US Spanish-language digital rights to Televisa audiovisual programming. That settles the remaining question from their legal battle, making it clear that Univision has the US rights to deliver Televisa programming on the Internet. Univision will gain the ability to use Televisa online, network and pay-television programming on its three current television networks (Univision, TeleFutura and Galavision), any future Spanish-language networks and on current and future Univision Interactive platforms (Univision.com, Univision Móvil and Video on Demand).
The PLA will be extended from its current 2017 expiration date to 2020, and upon satisfying certain conditions to at least 2025, the announcement stated. In exchange for the expanded rights and content, Televisa will receive increased royalties from Univision as a result of the revised terms of the PLA, with Univision’s royalty payments to Televisa increasing from the existing 9.36% of television revenue, excluding certain major soccer events, to 11.91% of substantially all of Univision’s audiovisual and interactive revenues through December 2017, at which time royalty payments to Televisa will increase further to 16.22%. Additionally, Televisa will receive an incremental 2% in royalty payments on any Univision audiovisual revenues above the 2009 revenue base of $1.6 billion. “This royalty increase is applicable on what is expected to be an expanded revenue base,” the joint announcement noted.
“We are extremely pleased to have reached this important agreement, which fully aligns the interests of Univision and Televisa for the long-term as both companies work to further serve the substantial growth opportunities in Spanish-language media in the United States,” said Haim Saban, Chairman of Univision Communications. “Univision is performing strongly, and this strategic partnership uniquely positions the Company for the foreseeable future,” He said. Saban said he was speaking on behalf of Univision owner Broadcasting Media Partners Inc., which includes Madison Dearborn Partners, Providence Equity Partners, Thomas H. Lee Partners, TPG Capital, and Saban Capital Group.
Emilio Azcarraga Jean, Chairman, President and CEO of Grupo Televisa, has been seeking for years to expand his Mexican media empire into the United States. Although he was thwarted in his 2006 attempt to take control of Univision, he has now come back with a deal that makes him a big player in how the company is run – and with the potential of owning a much larger stake. While Azcarraga Jean is a Mexican national, his wife is a US citizen, his children have dual citizenship and he could easily qualify for US citizenship, having lived in Miami much of the time for many years.
“This transaction with Univision provides Televisa with a highly attractive strategic platform for the continued distribution of our content in the US marketplace, our most important media marketplace outside of Mexico, and, in turn, to realize enhanced value for our stakeholders. As the largest media company in the Spanish-speaking world, Televisa has an unrivaled understanding of Spanish-language media markets. We are especially optimistic about the long-term growth potential of the US Hispanic media marketplace, and our economic interest in this premier platform through Univision should further enable us to participate in – and benefit from – this potential,” said Azcarraga Jean.
Here is a summary of the terms of the transaction:
Univision will receive exclusive Spanish-language broadcast and digital rights to Televisa audiovisual programming in the United States.
Univision will receive the US rights to broadcast Mexican soccer games for which Televisa owns or controls the US rights, beginning with select teams in 2011 and expanding to all teams to which Televisa has the rights in 2012.
Televisa’s 50% interest in its joint venture with Univision that owns TuTV, which broadcasts some of Televisa’s pay television channels in the US, will be contributed to Univision for a payment to Televisa of $55 million, which results in Televisa’s net investment in Univision of $1.2 billion.
The transaction, which has been approved by the boards of directors of both companies, is subject to the satisfaction of certain closing conditions, including the refinancing of a portion of Univision’s outstanding debt, and to antitrust clearance under the Hart-Scott-Rodino Act. Subject to fulfillment of these conditions, the transaction is expected to close in the first half of 2011.
Leading the negotiating teams were Univision Chairman Haim Saban and Grupo Televisa Executive Vice President Alfonso de Angoitia. Guggenheim Securities, LLC served as financial advisor and Weil, Gotshal & Manges LLP and O’Melveny & Myers LLP provided legal counsel to Univision. Allen & Company LLC acted as financial advisor to Televisa and Wachtell, Lipton, Rosen & Katz served as its legal counsel.
RBR-TVBR observation: While Univision has been producing more programming on its own in preparation for the possibility of not having Televisa programming after 2017, it is certainly less risky to nail down Televisa programming for a longer period and have Emilio Azcarraga Jean as an insider, rather than have him champing at the bit for the opportunity to launch a new network or take on a new partner in the US.