Spanish-language mergings

Speculation is rampant on the next up as Univision, Hispanic Broadcasting tie the knot
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Will radio-station group Spanish Broadcasting System (SBS) be next? That was the speculation in the wake of last week's proposed $3.5 billion acquisition of Hispanic Broadcasting Corp. by Univision.

The Univision-Hispanic Broadcasting deal would combine the top U.S. Spanish-language TV broadcaster with No. 1-ranked (by revenue) Spanish-language radio group.

The proposed tax-free stock transaction gives Univision shareholders about 73.5% of Hispanic Broadcasting's fully diluted economic ownership. If it's approved by regulators, the parties expect the deal to be completed by the end of the year.

Clear Channel Communications, a major investor in Hispanic Broadcasting (roughly 26%), has agreed to vote in favor of the merger, as have the boards of Univision and Hispanic, and will take an approximately 7% ownership stake in Univision.

But things could get complicated. On the same day the Univision-Hispanic deal was announced, Spanish Broadcasting filed an antitrust suit against Clear Channel and Hispanic (see box, below).

Merrill Lynch broadcasting analyst Keith Fawcett last week concluded in a report that SBS would make "an attractive takeout candidate for a company looking to gain a foothold in Spanish-language media."

Based on Univision-Hispanic valuations, he says, SBS might fetch $20 per share (or close to $1.3 billion), about a 75% premium over its current stock price.

Univision and Hispanic Broadcasting execs played up the cross-platform advertising and promotion benefits of the deal.

"Together, we'll be more successful in attracting advertisers who have not made the decision to come into this market," says Hispanic Broadcasting Chairman MacHenry T. Tichenor Jr., who will continue to run the radio group as a Dallas-based subsidiary of Univision. He will also join the Univision board of directors.

The deal comes six months after Univision launched its second U.S. TV network, Telefutura. Univision paid $1.1 billion to buy the USA Broadcasting TV stations, which now form the distribution backbone for Telefutura.

Hispanic had about $241 million in revenues last year. Univision said the combined companies would have pro forma 2002 revenue of between $1.39 billion and $1.44 billion and operating cash flow of between $433 million and $469 million.

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