Univision's Big Obstacle: Price

Bankers say it will take a partnership or some kind of exotic transaction to seal a deal.
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It's an owner's instinct to sell at peak price.

That's probably why

Univision

(UVN)

CEO Jerry Perenchio has put his highly attractive Hispanic radio and television operator on the block.

But does anyone have the money or wherewithal to buy all of Univision's television and radio stations?

News Corp.'s

(NWS) - Get Report

Rupert Murdoch said late Wednesday that he wouldn't be interested in the company at $40 a share, a price that has been mentioned in the press.

His sentiment sums up Wall Street's view. A large media company probably won't acquire Univision without a partner.

Univision, which operates television and radio stations, is uniquely positioned in the U.S. media market as one of the only operators that serves the booming Hispanic demographic. As television and radio competition heats up from newer media outlets -- satellite radio, Internet multimedia, and cable television -- Univision is seen as one of the last growth frontiers among its broadcasting peers.

This potential has attracted a steady stream of unofficial interest from both media and private equity companies, who have longed for a piece of the Spanish-speaking audience.

Now, somewhat suddenly, the company says it's open to offers -- and some large media companies, such as

Time Warner

(TWX)

and

CBS

(CBS) - Get Report

, might be eying the assets. Univision has hired

UBS

(UBS) - Get Report

as the financial adviser in the process.

Univision undeniably has an attractive, high-growth niche, but many bankers aren't sold on Univision sealing the deal with a strategic buyer.

To start, the price tag on Univision would be aggressive for even the most interested media company. After the

New York Times

broke the news of Univision's strategic review on Wednesday, the shares added $3.66 to $34.20 and closed at a level that makes its enterprise value divided by next year's estimated earnings before interest taxes depreciation and amortization (the standard metric for broadcasting stocks) roughly 15. That's far above the industry average of around 10. According to the

Wall Street Journal

, Univision is seeking a price of $40, almost $10 above Tuesday's close.

A $40 share price implies a market cap of $12.6 billion, but the price could go higher than that, up to $15 billion, some investment bankers say, given the run in the stock on Wednesday. Paying that much for Univision's 62 television stations and 69 radio stations makes the thought of a transaction "daunting," one banker says.

To complicate a deal, many strategic buyers would have to pick apart their own radio and television assets due to Federal Communications Commission ownership restrictions. The government agency restricts any single media company from owning two of the four largest stations in a single market, or having over 40% of the total U.S. audience.

These regulations could prove prohibitive for some potential buyers. "CBS would be out, because of overlap," said one banker. "News Corporation would be too."

Divesting certain assets to retain others can get complicated -- there are tax implications, and of course, there has to be buyer interest in the divested assets.

Ticking down a list of other media companies, this banker says

Viacom

(VIA) - Get Report

might be a possibility, although Sumner Redstone's ownership stake in CBS complicates it.

Disney

(DIS) - Get Report

just sold its radio division, so it probably won't be interested, and Time Warner is dealing with its own battles with hedge fund activist Carl Icahn, so any bids there are also unlikely.

That leaves two media companies that some think could be in the game: Telemundo, which is owned by

GE

(GE) - Get Report

, and a company some view as a white knight:

Televisa

(TV) - Get Report

.

Many believe that of the strategic buyers, Televisa, the large broadcasting company in Mexico, has the best shot at a purchase. But it would encounter foreign ownership restrictions and might not be able to go the road without a private equity partner.

These large public media companies have another consideration: dilution. "By far the biggest strike against each is the massive dilution for shareholders given the

relative depressed valuation for every one of these

public companies" said another investment banker close to Univision.

Bankers agree that there could be a number of possibilities beyond a strategic buyer. "A private equity company could end up partnering with a strategic player," speculates one banker, "A $6 billion equity check would be nothing for a private equity guy right now."

Wall Street agrees that private equity interest in Univision could be huge. Many investors -- such as Providence Equity and ABRY Partners -- have recently made acquisitions in Hispanic media. Although private equity bidders wouldn't be competitive alone, by partnering with an interested media company, many could be competitive.

Many other variations of a deal could also be up for grabs: asset swaps, public spinoffs and partial sales, to name just a few.

In general, Wall Street was taken by surprise by news of the Univision review.

"We only read about it today like everybody else, Univision, and we will be looking at it," News Corp.'s Rupert Murdoch told analysts on a conference call.

Bankers close to the company were also blindsided.

"Why now?" asks one banker. "Has growth slowed from hyper levels, and is the Hispanic audience maturing?" That's not likely, he says.

So why has Univision just come for sale?

Bankers offer up a myriad of reasons. It's the liquid market, one says -- a deal of this size could close fairly seamlessly in the active markets of today. Private equity capital, says another -- many financial buyers have enough capital on their books and need to put their money to work. There are capital gains tax considerations as well that would help Univision sellers. Another banker notes, half jokingly, that "Jerry Perenchio may be getting old" (although he's forced to wonder why 75 is a more urgent age than, say, 73, when Perenchio wasn't a seller).

To be sure, "the process is just in the beginning stages." And bankers have many long hours ahead to try to ponder deal structures and possible buyers. As they say, stay tuned.