Univision owners script a telenovela-worthy twist

October 5, 2010

The private equity owners of Univision have scripted a telenovela-worthy twist. They larded on debt to buy the U.S. Spanish-language broadcaster four years ago. In the process, they saw off rival suitor and Univision’s frequent arch-rival Televisa. The Mexican media group is now avenging its loss by buying in at a big discount to the original deal. The upside for Univision’s current owners, including Haim Saban and Providence Equity, is that Televisa gives their investment in Univision a better chance at a happy ending.

The $13.7 billion leveraged buyout of the company in 2006 became a poster child of the private equity boom. The valuation, more than 15 times EBITDA, was heady even for a company expected to outpace its TV rivals. And if the deal’s debt level at over 12 times EBITDA wasn’t the highest of the period, it came close. Fast forward, and even though Univision’s specialty in the fast-growing Spanish-language market has shielded it from the worst of the advertising downturn, the economic bust has taken its toll.

That has finally opened the door for Televisa. It is paying $1.2 billion for an initial 5 percent stake in Univision, a chunk of 15-year debt with a 1.5 percent coupon that can be converted into a further 30 percent equity stake, and an option to buy another 5 percent. The package values the company’s equity at $2.3 billion. The five original buyers kicked in nearly $4 billion, meaning Televisa’s patience has been rewarded with an entry price reduced by about 40 percent.
The Mexican group also secured a new programming agreement that will bring it an extra $50 million of royalties this year. That figure grows to more than $200 million in 2011.

The price may be a small one to pay for Saban and his cohorts. Locking in Televisa and more of its content could accelerate breaking even, and may even produce a face-saving profit on their investment. Assuming a big slug of Televisa’s investment is used to pay down debt, Univision would end up with leverage reduced to about 10 times EBITDA.

Securing longer-term programming — including Spanish-language telenovelas, or soap operas — as well as rights to Televisa content online should both reduce production costs and boost ad revenue. At least that’s the plan. But as any daytime-TV watcher knows, the storyline can always take another unexpected turn.

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