When a company offers itself for sale, it usually sparks a rush on Wall Street. So in February, when Univision Communications Inc. announced it would “explore strategic alternatives to enhance shareholder value,” including the sale of the company, it goosed the share price by about 14 percent.
But given the way Univision dominates the Spanish-language media industry its TV shows regularly secure “Super Bowl-like numbers,” according to a report from advertising agency Lapiz the prospect of an acquisition should have brought an even bigger premium to shareholders.
That’s not how it turned out.
Univision, already trading at high multiples and rising interest rates unsettling banks and debt markets, had hoped to draw bids totaling more than a $12 billion. But then it looked like it might go for little more than its existing market cap, under $11.5 billion.
The two investor groups with a serious shot at acquiring Univision were not valuing it at a premium, perhaps agreeing with some analysts who believe the Los Angeles-based network might not be able to maintain its blistering pace of growth.
The first investor group, spearheaded by Los Angeles television entrepreneur Haim Saban, with the financial backing of Madison Dearborn Partners LLC, Thomas H. Lee Partners, Providence Equity Partners Inc., and Texas Pacific Group Inc. reportedly made a bid in the $35 per share range, nearly identical to Univision’s market price. Univision’s stock declined 4.4 percent to close at $33.84 on the day of the bid, given investors’ disappointment in how the bidding turned out.
Earlier, Univision and several analysts had pegged a target price of $40 per share. That would calculate to a total value of $12.2 billion for Univision, which owns two TV networks, a cable channel, 62 TV stations, a radio network and station group, a music operation and the Web portal Univision.com.
The second investor group is built around Televisa, the Mexican broadcaster that supplies most of Univision’s primetime programming, and Cisnernos Group of Venezuela. Between them, they own about 24 percent of Univision’s shares. Because U.S. law limits foreign ownership of broadcast stations, the group at one point included U.S. investment banks Bain Capital Partners LLC, Blackstone Management Associates V LLC, Carlyle Investment Management LLC, Cascade Investment LLC and Kohlberg Kravis Roberts & Co. LP. However, Blackstone, Kohlberg Kravis and the Carlyle Group dropped out late last week and the consortium did not submit a bid, missing Univision’s self- imposed bidder deadline.
“We anticipate that the auction process will yield a price of $37 to $40, consistent with our valuation models and $40 price objective,” wrote Jessica Reif Cohen of Merrill Lynch on May 5. “We continue to believe UVN is poised to benefit from a period of accelerating EPS growth, driven by top line expansion (both organic and World Cup related), and recent costs cuts.”
On May 11, Anthony Di Clemente of Lehman Bros. set a 12-month price target of $40, but noted the short-term need for competitive bidding to push the price up. “The presence of a potential second private equity consortium, and hence a likely second competitive bid, would be the key driver that could drive a UVN sale above $40 per share,” he wrote in a note to clients.
Even the smart money differs widely on the valuation of Univision. Of the 21 analysts who cover the stock, 13 give it a positive rating, four are neutral and four judge it negatively. Philip Remek, an analyst at brokerage Guzman & Co., put the target price at $33. “Since the market price is above our target, we maintain an ‘underperform’ rating for shares of UVN,” he wrote on March 7.
Univision revenues grew 9.3 percent last year, but that follows three years with growth of 20 percent or better. Investors have built large revenue gains into their expectations, so 9.3 percent looks slow. The stock trades at more than 61 times earnings, nearly double the average for the broadcast industry.
In terms of long-term positioning, pending immigration reform could restrict new consumers for Univision’s programming. That, coupled with the established historical pattern of immigrant groups learning English and assimilating into mainstream U.S. culture, point to challenges ahead for the Univision’s business model. Based on valuation, both the investing public and big-money media players seem to feel that Univision’s glory days are now rather than in the future.
