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Grupo Televisa Poised to Gain from Probable Univision IPO


Mexican pay-TV and broadcasting behemoth, Grupo Televisa S.A. TV, is likely to gain significantly from its ownership stake in U.S. broadcaster Univision Communications Inc. Notably, Univision is the largest privately held Spanish-language broadcaster in the U.S. According to a recent report by TheStreet, the owners of Univision are seriously considering an initial public offering (IPO) for the company in 2017.

Last week, Televisa secured authorization from the U.S. telecom regulator Federal Communications Commission (FCC) to own up to 40% of U.S. Spanish-language TV network Univision Inc.'s voting stock and up to 49% of its common shares. Further, the FCC approved a move to raise the total number of shares in Univision that can be held by foreign investors from 25% to 49%.

In 2007, Univision was acquired by a consortium led by billionaire Haim Saban for a total consideration of $13.7 billion. Other investors were Madison Dearborn Partners, Providence Equity Partners, TPG and THL Partners. In early 2012, Televisa effectively purchased a 35% stake in Univision for $1.2 billion. Per the agreement, Televisa paid $130 million in cash for a 5% stake and purchased convertible debt for the remaining 30% stake.

Moreover, Televisa holds the right to buy an additional 5% stake over the next five years, which would effectively increase its potential ownership in Univision up to 40%. Currently, Televisa effectively holds a 38% (8% in equity and 30% in convertible debt) stake in Univision. This leaves scope for buying 2% stake in 2017.

Univision is the fifth largest TV network in the U.S. The company’s portfolio consists of two leading Spanish-language broadcast networks, several cable channels, TV stations and a chain of popular Spanish-language radio stations. Currently, a considerable share of Televisa’s income is generated from its U.S. operations, which includes the sale of content, website and cable TV. Televisa allows Univision to access its content and then rebroadcast it on TV and the Internet for a royalty. In the first half of 2016, Televisa’s royalty from Univision was $154 million, up nearly 9.4% year over year.

In 2014, the government of Mexico had introduced reforms within its telecommunications sector, which included the pay-TV segment as well. Factoring this development, the Mexican telecom regulator the Federal Telecommunications Institute (IFT) allowed Televisa to enter into the nation’s wireless market. However, the company is yet to take any decision regarding this development.

Notably, the company’s reluctance is mainly due to the presence of large incumbent wireless operators such as America Movil SAB AMX, Telefonica SA TEF and AT&T Inc. T. America Movil currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We note that the U.S. Hispanic TV market is highly lucrative and is growing at a remarkable pace. In 2015, Reuters estimated that Univision’s IPO could raise $1 billion which will eventually raise the company’s value to more than $20 billion. Consequently, Televisa is poised to gain significantly from Univision’s IPO.

Price Performance of Televisa

2016 was not a good year for Televisa. The stock lost a substantial 25.93% value in the last one year in contrast with a 12.11% gain exhibited by the Zacks categorized Broadcast Radio and TV industry. Growing competitive pressure in the Mexican pay-TV market from peers like TV Azteca and others along with shrinkage in operating margin are the near-term concerns. This is the primary reasons behind the stock currently carrying a Zacks Rank #5 (Sell). We will closely monitor whether management can introduce any effective turnaround strategy in 2017.

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