Univision Draws Legal Fire From Rival In Bid for Hispanic Broadcasting

Although Univision Communications Inc.’s $3.5 billion bid for Hispanic Broadcasting Corp. may be slowed by an unusual competitor’s lawsuit, industry followers don’t expect the legal action to sink the deal. The complainant accuses Univision and an allied broadcaster of doing it damage, even before the deal goes forward. The would-be spoiler is rival radio operator Spanish Broadcasting System. Shortly after the Univision/Hispanic Broadcasting hookup was announced, Spanish Broadcasting filed suit in the U.S. District Court in Miami, alleging that Hispanic Broadcasting and Clear Channel Communications Inc., which owns a 26% stake in Hispanic Broadcasting, have tried to damage Spanish Broadcasting’s relationships with Wall Street bankers and investors. Complicating matters further is the involvement of Clear Channel, which is prohibited by Federal Communications Commission (FCC) regulations from taking a hands-on management role in Hispanic Broadcasting. Spanish Broadcasting alleges that Clear Channel, the nation’s largest radio broadcaster, and Hispanic Broadcasting worked together to damage its reputation in the financial markets. In a statement, Clear Channel said that the allegations were “absurd and unfounded,” and that it will “fight vehemently to defend our position, and we have every expectation of winning on all counts.” While the suit did contribute to a drop in Univision’s stock price on the day it was announced, it isn’t expected to derail the deal. “My sense is that Univision is a long-term player in this market, and its bid for Hispanic Broadcasting will succeed even though the suit has driven down its stock price for the moment,” says Hector Orci, co-chairman and CEO of Agencia de la Orci, a Hispanic advertising group based in Los Angeles. “Hispanic is the crown jewel of the Spanish media market, so it is a wise strategic move for Univision to pick it up,” says David Joyce, an analyst at Guzman & Co. He notes that the large holders of Hispanic Broadcasting stock have signed off on the deal and downplays media reports that other buyers might emerge. “Viacom and Telemundo may have been interested in Hispanic Broadcasting, but now that Univision has launched its bid, it is unlikely than anything more will come of their interest,” he states. The last major deal in the Hispanic media industry was the $2 billion acquisition of Telemundo Communications Group Inc. by General Electric Co.’s NBC unit last year. Univision is the market leader in Spanish-language TV, while Telemundo is No. 2. Hispanic Broadcasting, which is about twice the size of Spanish Broadcasting, commands more than 40% of the Spanish-language radio advertising revenue in major markets. The hookup with Univision will combine Hispanic Broadcasting’s 55 radio stations with Univision’s 50 TV stations. Joyce says he expects few challenges to the deal from regulators. Because the new company will have seven stations in Dallas, he notes, it is likely that Univision may have to sell two or three stations. However, he believes that these divestitures will satisfy regulators. To ad agency head Orci, the real significance of Univision’s move on Hispanic is that it underscores the discovery by the financial markets that Latino media is becoming a mature marketplace. He says that if you look at the census data from two years ago, the Hispanic market is a demographic of 7% or 8% of the U.S. market, but it is expected to provide as much as 12% of the advertising growth. “There’s certainly a tactical advantage to being a one-stop shop in the Hispanic marketplace. A lot of companies are trying to figure out how to best position themselves to take advantage of this growing market, and Univision’s bid for Hispanic is an example of this.”