M&A

Did Univision Get a Bargain?

Why the Spanish-language network seems to have paid below-market prices for USA Network's TV stations.
Craig SchneiderDecember 15, 2000

By one measure, Univision Communications got a steal when it recently plunked down $1.1 billion in cash to buy USA Networks.

The Spanish-language network will get 13 fully- owned stations and minority interests in four stations.

It will wind up with duopolies in seven of the eight top Hispanic markets and a new broadcast presence in nine major television markets.

Yet, the $1.1 billion purchase price works out to about $84 million per station. “Most broadcasters that yield positive cash flow are acquired for between $100 million and $130 million per station,” says David Miller, entertainment and media analyst at Sutro & Co., a Los Angeles-based investment banking firm. “I would say that in aggregate dollars, they paid market value or slightly below market value.”

However, as is usually the case, things aren’t that simple. You see, the reason for the disparity in the numbers is twofold.

For starters, USA Broadcasting stations yield negative cash flow. As a result, you can’t value the stations based on a multiple of cash flow, the preferred media M&A metric.

Perhaps more importantly, the deal is different than most other TV station deals because the two companies broadcast in two different languages.

Therefore, Univision can not automatically assume that the cash flow–or lack thereoff– being generated at English-language USA Broadcasting channels, will be maintained for its Spanish-language format.

Despite the fact that USA had 24-hour programming, revenue and a customer base, Univision, in effect, must start from scratch. It must develop new programming, and subsequently build a new audience for it.

In effect, Univision actually just bought TV signals in specific cities, which heavily explains the discount it paid.

Indeed, Univision executive vice president Andrew Hobson, who handled the role of Univision’s investment banker, told analysts on the conference call that the company did not try to compute a value for each individual market when arriving at the final purchase price. Rather, Univision went more with a lump- sum approach.

“It was just done purely mechanically,” Hobson said. “We did not try to say Cleveland is worth ‘x,’ and New York is worth ‘y’ and Los Angeles is worth ‘z.’”