News Column

Together Again

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The relations between Mexico's Grupo Televisa S.A.B. and Univision Communications Inc. have been a long on-and-off-again affair. Currently, it is back on after an agreement that has Televisa investing $1.2 billion for the benefit of Univision, receiving among other things a 5-percent ownership share of Univision, and the extension of the two media giants' program license agreement.

Which company ultimately benefits most from this accord and the long-term effects on the future of Spanish-language media would be anyone's guess given the history of these companies. The twists and turns in their romance could well be the perfect plot for a telenovela.

When Patricio Wills was head of development at Telemundo, he reportedly described the structure of a telenovela this way: "A telenovela is all about a couple who wants to kiss and a scriptwriter who stands in their way for 150 episodes."

Televisa and Univision first kissed in 1961 when Telesistema Mexicano, the forerunner of Televisa, created the Spanish International Network (SIN), the forerunner of Univision. In the 50 years since, Televisa and Univision have been together twice and apart twice. Now, they are together for a third time, perhaps only holding hands instead of kissing, following the complex deal completed Dec. 20, 2010.

Complex Equity Investment
In addition to the $1.2 billion in cash and assets that Televisa paid Broadcasting Media Partners, Univision's owner, for a 5-percent ownership share in Univision, Televisa also took on debt equal to 30 percent of Univision's value, and has the option to acquire another 5 percent. The deal included an extension of the program license agreement (PLA) between the two media companies until 2025, unless Televisa decides to sell two-thirds of its initial investment in Univision. Then, the PLA would extend for only seven-and-a-half years. In addition, Televisa sold its 50-percent stake in Televisa's pay TV channels in the United States, to Univision. TuTV had been a joint venture between the two.

The deal makes Univision the distribution outlet in the United States not only for Televisa's hugely popular telenovelas but also for Televisa's digital content. Univision already dominates the U.S. Spanish-language media industry, but for online items, the competition is much tighter, according to data. Univision ranks No. 1 with 1.5 million monthly users, but is only 400,000 ahead of No. 2 with 1.1 million users.

Univision Chief Executive Officer Joe Uva believes the deal to be very beneficial. "We are very pleased to have completed this value-creating transaction, which will significantly enhance Univision's world-class multiplatform offering for viewers and clients while considerably strengthening the company's balance sheet."

Univision's balance sheet has been buffeted by debt that stretches back to 2007, when Broadcasting Media Partners, a consortium of investment groups led by Haim Saban's Saban Capital Group, acquired Univision for $13.7 billion. It was another one of those telenovela moments when the writer keeps the couple from kissing because, on the losing end of the leveraged buyout of Univision, was a group that included Televisa.

Miller Tabak & Co. analyst David C. Joyce was quoted as saying in December 2010: "The new equity investment will help them refinance the debt and get lower rates: The interest rate environment is lower than when they took Univision private. In the end, Univision saves money on the balance sheet by saving in interest expense."

Since the deal was closed in December 2010, Univision has done some restructuring of its debt to repay a portion of its 2015 senior notes.

"The refinancing of Univision's debt was completed on terms that exceeded our expectations, reflecting the financial community's confidence in our business and its future," Mr. Uva said in a statement.

All the principals involved in the agreement expressed similar sentiments in various news releases about the completion of the deal.

Emilio Azcárraga Jean, chairman of the board and chief executive officer of Grupo Televisa said, "This agreement gives us very attractive strategy platforms to continue distributing our content in the U.S. market."

Mr. Saban, chairman of Univision Communications, spoke on behalf of Univision's owner Broadcasting Media Partners: "With the expansion and extension of the PLA, Univision can now better serve our audience. This further strengthens our unique relationship with the dynamic U.S. Hispanic community."

Alfonso de Angoitia, executive vice president of Grupo Televisa, said: "We have been working with Univision since the initial announcement to better explore the opportunities that can be created. ... We are very enthusiastic about the opportunity to create additional value to shareholders of both companies through these initiatives."

That, of course, is the main goal of any public or private company, to create additional value. But could there be something beyond value in the works?

U.S. Market Offers Wealth
When the agreement was first announced in October 2010, Gregorio Tomassi, a media analyst at Banco Santander in Mexico, told Variety magazine that the "agreement is well structured and signifies a new era for Televisa in the share of wealth it can capture in the U.S. market."

Miller Tabak's Mr. Joyce said: "This deal helps Televisa's valuation because they're getting it much cheaper than if they had bought Univision in the privatization. The ramp up of royalty rates in 2011--with a higher rate and a broader base of programming--helps Televisa's stock.

Though the agreement looks to be an effort to shore up a financially strapped Univision, it actually brought Televisa some perks beyond any monetary gains from its investment. As part of the agreement, three Televisa representatives joined the Univision board of directors: Mr. Azcárraga; Mr. de Angoitia; and Enrique F. Senior Hernández, managing director of Allen & Co., which advised Televisa during the negotiations, and a member of the Televisa board of directors. A fourth person with ties to Televisa, José Bastón Patiño, president of television and contents, and a member of Televisa's executive committee, was named alternate member to the Univision board.

And, as José Cancela, principal of Hispanic USA Inc., noted in his Dec. 10, 2010, blog, Mr. Azcárraga picked up "the keys to the Univision news division."

What that brought about was reorganization at Univision. Out was 25-year veteran Alina Falcón as president of news and in was Isaac Lee, whom Mr. Cancela called the longtime confidant of Mr. Azcarraga. Also, Alexander Brown was named president of sports. He previously had been the chief executive officer for Petry Holding, a media representation firm.

In making the changes, Univision said Ms. Falcón had decided to leave her position heading up both news and sports to consult on special projects. Mr. Lee had recently been chairman and editor in chief of Poder, a business magazine and website owned by Televisa. He also served as editor in chief of Semana, a news magazine in Colombia, and as editor of the Latin American news magazine Cromos.

Does all this suggest Televisa seeks a greater influence over Univision?

The terms of the agreement will let Televisa buy another 5 percent ownership share in Univision in five years, which would boost Televisa's ownership of Univision to 10 percent, even though the debt assumption would put Televisa's equivalent equity in Univision at 40 percent. By U.S. media-ownership laws, a foreign company can own no more than 25 percent of a U.S. company. Thus, Televisa could only acquire another 15 percent share of Univision.

Congress would have to rewrite the foreign media ownership laws before Televisa could increase its ownership in Univision beyond 25 percent. But Congress does not often revisit the ownership limit. In fact, when the laws were first penned nearly a century ago, Congress restricted foreign ownership to 20 percent. A 5-percentage-point increase over that span of time suggests changing that part of the law is not high priority.

The quick approval of the deal by the Department of Justice does not remove Televisa and Univision from scrutiny by the Federal Communications Commission.

"The FCC has been very busy looking at Title 2 regulations and the Comcast/NBC merger," Miller Tabak's Mr. Joyce said in a phone interview, adding that the FCC could still look into how ownership might be perceived. But the FCC might not consider the deal at all. A source at the FCC who requested anonymity said no application has been filed by Televisa or Univision or Broadcasting Media Partners. "The rules tell you when you need to file," the source said, adding that there would have to be a transfer of license before the FCC became involved.

Long and Rocky Relationship
The first interaction between the two media giants in this business-style telenovela dates to 1961, when the forerunner of Televisa, Telesistema Mexicano, created the Spanish International Network (SIN) under the umbrella of Spanish International Communications Corp. (SICC). At the time, SICC was owned by the Azcárraga family, with Emilio Azcárraga Viduarreta at the helm of Telesistema Mexicano. He was succeeded in 1972 by Emilio Azáarraga Milmo. Rene Anselmo, a U.S. citizen, served as president of both SIN and SICC. While U.S. regulations at the time limited foreign ownership of a television station to 20 percent, it had no such limitations on ownerships of a network, such as SIN.

Also in 1972, Telesistema Mexicano merged with Television Independiente de Mexico. The new company took on the name Televisa, supposedly derived as an acronym from Television Via Satelite.

After a long-running assault by shareholders, the U.S. government ruled in 1986 that Mr. Anselmo was an agent of foreign influence, in this case the Azcárraga family. The American owners of SICC decided to sell it. That occurred in 1987 when SICC's television stations were sold to Hallmark Cards Inc. and a minority partner, First Chicago Venture Capital. Under new ownership, SIN was renamed the Univision Network.

Financial problems made Hallmark's involvement with Univision short-lived. In 1992, Jerrold Perenchio, Televisa and Venevision acquired Univision. Again, Univision was back in Televisa's arms.

Fifteen years later, Mr. Perenchio announced his intention to sell Univision. Televisa and Venevision had owned a combined 25 percent of Univision at that time and wanted to continue with that investment. They partnered with five private equity firms to avoid violating foreign ownership laws to make a bid. But a new suitor had entered into the picture, Broadcasting Media Partners led by Mr. Saban. In the end, Mr. Saban's group was able to outbid the Televisa and Venevision group.

As The Economist reported in June 2006, many observers believed Televisa would have stayed in an effort to outbid the Saban group, but suspected Mr. Perenchio chose to sell to somebody else because of the two companies' troubled history. Some believed the reason was simpler, The Economist said, that Mr. Perenchio faced less regulatory risk in accepting Mr. Saban's bid. Selling to the Televisa group might have caused the FCC to look closely to see if Televisa was violating foreign-ownership rules.

In the years since Broadcasting Media Partners bought Univision, the relationship with Televisa has been strained, especially concerning the program license agreement. Televisa and Univision have sued each other over payments and royalties, but now that they are sort of courting each other again, those lawsuits have been settled.

What comes next will depend on Televisa's determination to tap deeper into the Spanish-language television market and how aggressively it might seek to bring Univision back into its fold. One thing is certain, there are many episodes left before the kiss at the end of this business-style telenovela arrives.

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