Despite analysts’ predictions that the proposed merger involving Univision and Hispanic Broadcasting Corp. (HBC) will win rapid regulatory approval, a federal lawsuit by Spanish Broadcasting System (SBS) may have already sown the seeds of the deal’s demise.
Related Materials•SBS Complaint vs. Clear Channel & HBC•SBS Complaint vs. Clear Channel, June 25, 2002
Filed in U.S. District Court in Miami the same day the merger was announced, SBS’s antitrust lawsuit could expose the newly constituted Univision to paying monetary damages if SBS were to prevail. Moreover, the suit calls into question whether HBC has been completely forthcoming with its would-be suitor.
In merger-related disclosure documents filed with the Securities and Exchange Commission, HBC denies having been threatened with litigation in the months leading up to the merger announcement. However, in at least one letter earlier this year, SBS CEO Raul Alarcon Jr. threatened both HBC and Clear Channel Communications – the two firms named in the SBS lawsuit – with legal action for anticompetitive behavior.
If Univision were to seek a way out of the merger, Mr. Alarcon’s correspondence could provide a convenient opening.
The SBS lawsuit accuses HBC and Clear Channel Communications of predatory behavior in an effort to monopolize the top 10 U.S. Spanish-language radio markets in violation of the Sherman Act. The 20-page suit contends that tensions between the companies rose sharply after Clear Channel and HBC tried unsuccessfully to acquire SBS last year.
The most sensational allegation holds that Clear Channel’s executive vice-president and chief financial officer, Randall Mays, tried to derail SBS’s 1999 initial public stock offering by telling a Lehman Bros. official that Mr. Alarcon was a “drug user and/or drug trafficker.”
Clear Channel owns 26 percent of HBC and would own 7 percent of Univision should the latter’s acquisition of HBC go through. It is unclear what Univision’s liability would be in the event its acquisition went as planned and SBS prevailed in court.
Under the agreement announced in June, Los Angeles–based Univision, the nation’s leading Spanish-language TV broadcaster, would acquire HBC, the top Spanish-language radio network, in an all-stock transaction valued at about $3.5 billion. HBC, which owns 55 stations and has more than 1,100 employees, would be renamed Univision Radio Group and would continue to be based in Dallas. HBC CEO McHenry T. Tichenor Jr. would serve as CEO of the new subsidiary.
Analysts say the deal is a good move for Univision, which will be able to promote its programming during HBC broadcasts. HBC is the top-billing Spanish-language radio owner in such key U.S. Hispanic markets as Los Angeles, Houston, Miami, Dallas, and San Antonio (see “Calm After the Storm,” December 2001).
However, the proposed merger troubles activists such as Alex Nogales, chairman of the National Hispanic Media Coalition.
“We’re very concerned about what this means. Unlike English-language TV, where you have at least five players, in Spanish-language TV, for all intents and purposes, you have just one. There is a real danger of this becoming a monopoly,” Mr. Nogales says, hastening to add that he would reserve judgement about the deal until he’d had a chance to meet with Univision officials.
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