HispanicBusiness

A major investor in Spanish Broadcasting System (SBS) claims that the media company's CEO and Chairman Raul Alarcon refuses to relinquish any control and has been unresponsive to "favorable opportunities" presented by the shareholder, who is calling for the board to sell, take the company private or change its current corporate governance and executive structure.

In a letter to the Board of Directors by investor Discovery Group, the Chicago equity firm is demanding that SBS form a group of "truly independent directors" and bring in an investment banking firm to evaluate alternatives. Discovery owns 9.8 percent of the South Florida radio and TV company.

"Disappointment and deterioration in the public trust started early," the letter states. "In the first quarter of operation as a public company, SBSA's operating income fell to $0.7 million from $8.8 million in the prior year due to an increase of $11.0 million in corporate expenses for severance payments for two retiring executives and executive performance bonuses."

SBS, which owns 20 FM radio stations and launched its own television station in South Florida in 2006 -- declined to comment on the letter, which was filed with the Securities Exchange Commission.

The company's stock closed at $1.57 Monday, down from a peak of $42 shortly after SBS's 1999 IPO. Pablo Raul Alarcon, Mr. Alarcon's father, founded SBS in 1983.

Discovery Managing Partner Daniel J. O'Donoghue claims in the letter that "the continued deterioration in share price from $5 to a current price of $1.60 reflects a string of disappointing operating results."

When SBS went public in 1999, the company's value was approximately $1.5 billion, today the market capitalization is "roughly $500 million, including $375 million in debt," Mr. O'Donoghue wrote.

"The only person who benefited over this period was Mr. Alarcon," noted Mr. O'Donoghue. "From the time SBSA went public through 2006, Mr. Alarcon has paid himself $10.1 million in salary, $7.3 million in bonuses and over $2 million in apartments, automobiles, drivers and assorted personal benefits."

The Discovery official noted that the firm's portfolio managers met with large media conglomerates, and "many expressed their interest in a potential acquisition or merger with SBSA. We consistently heard from media peers that SBSA owns premier properties, enjoys market leadership positions, operates in highly attractive geographic markets and is situated in the most promising media genre."

Last December, Mr. Alarcon was initially interested in a deal with an "important media company," Discovery said, but he "suddenly and without explanation" refused to discuss the deal any further.

"It is generally understood in the media industry that Mr. Alarcon will not consider any transaction that requires him to relinquish any degree of control, regardless of the merits of the deal or the implications for public shareholders," Mr. O'Donoghue wrote.

Should the board not act on Discovery's request, the investor will file a proxy for the company's next annual meeting asking shareholders to vote on the proposal.