Univision Seeking CEO, But 2 Top Execs Will Stay
By Luis Clemens -- Multichannel News, 2/25/2007 7:00:00 PM
Univision Communications chief operating officer Ray Rodriguez and chief financial officer Andrew Hobson are “expected” to stay on for five years following the completion of the top U.S. Spanish-language broadcaster’s sale to private investors, according to a Feb. 16 Securities and Exchange Commission filing. But it is looking for a new CEO.
A. Jerrold Perenchio, Univision’s longtime controlling shareholder, will be replaced as CEO. Executive-search firm Spencer Stuart has been retained by the buyers to assist in the hiring, according to one industry executive. Judy Havas, a Los Angeles-based recruiter said to be participating in the search process, and a Univision spokesperson could not be reached by press time.
The Feb. 16 SEC filing does not specify whether Rodriguez and Hobson would remain in their current posts. An earlier filing said the employment contracts of those executives and two others had been extended through the end of 2009. No job titles were mentioned.
“Rodriguez and Hobson have a long-established and proven record of management success, having played key roles in bringing that company from a ratings basement 15 years ago to the top floor presently and establishing Univision as the preeminent brand among U.S. Hispanics,” said BMO Capital senior media analyst Leland Westerfield.
DEBT BURDEN
A new CEO will face several key challenges and will benefit from the company’s dominant position in U.S. Spanish-language media. The first order of the day, although not necessarily the toughest, will be financing the heavy debt load that is part of the leveraged buyout.
On Feb. 16, Univision said Umbrella Acquisition, an entity affiliated with the private-equity consortium backing the buyout, would borrow $1.5 million. Investors include Texas Pacific Group, Madison Dearborn Partners, Providence Equity Partners, Thomas H. Lee Partners and Saban Capital Group.
Concerns about the debt load that the company will bear resulting from the $12.3 billion purchase by the Texas Pacific consortium prompted Standard & Poor’s to take down its rating of Univision’s debt from B to BB-minus.
“The two-notch downgrade reflects Univision’s significantly increased financial risk following its pending [leveraged buyout],” credit analyst Michael Altberg said, in a statement. Lower ratings have the effect of increasing the risk as well, since companies wind up paying higher interest rates to repay the amount borrowed.
But “historically, there has been double digit growth [in the Hispanic market] unlike the general market,” said Hispanic media consultant Julio Rumbaut. “There is certainly room for growth to support this kind of debt structure.”
Growth alone, however, won’t be enough. Univision intends to sell its “music publishing and recording businesses and a portfolio of noncore radio stations”, according to recent SEC filings.
Univision’s music business has suffered from sharply declining revenues and profitability over the past several quarters. The company expects the sale will bring in more than $500 million to be used to pay its “new second-lien asset sale bridge term loan.”
Univision also expects to realize $27 million in annual savings, of which $11.5 million is to come from a “vendor-efficiency program.” That program will result in “modifications to employee medical plans; changes in our employee travel policy; and the consolidation and renegotiation of vendor contracts.”
TELEVISA LITIGATION
Univision won’t be scrimping with regards to its second and perhaps most difficult challenge: resolving its ongoing legal dispute with Mexico-based broadcaster Televisa. Univision spent $18.72 million last year and more than $33 million since 2004 in litigation and paying disputed licensing fees.
Televisa provides Univision with the bulk of its highly successful weekday primetime telenovelas as part of a program licensing agreement that expires in 2017. Televisa, which participated in a failed bid to acquire Univision, has repeatedly made clear its belief that the agreement provides too little payment.
“Univision without Televisa is Telemundo. That’s the bottom line,” said José Cancela, a former Telemundo and Univision executive who is now principal of market consulting firm Hispanic USA. Telemundo, the NBC Universal-owned Spanish-language network, is a distant second to Univision in ratings and advertising revenue.
“The reality is that the programming that Univision has in place is extremely, extremely valuable,” said Cancela.
The quarrel with Televisa is specific to Univision, but all Spanish-language broadcasters in the U.S. face the longstanding challenge of ensuring ad revenues match the size of their audience. U.S. advertisers spend proportionally less money on reaching Spanish-language viewers than they do for English-language audiences.
The company expects the sale to be completed by March. A formal announcement of the completion of the sale and the naming of the CEO are tentatively set for March 26, according to two industry executives.
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