Six Things Univision’s IPO Says About It, Fusion, El Rey, And The World Cup

Wall Streeters finally have the Univision IPO they’ve been waiting for. Today’s preliminary SEC filing for at least a $100 million stock sale promises to offer investors an opportunity to bet on the booming buying power of Hispanic audiences in the U.S. — and, as a non-financial bonus, thumb their noses at Donald Trump. It also provides a potential exit for its private equity owners including Madison Dearborn Partners, Providence Equity Partners, Saban Capital Group, TPG Capital, and Thomas H. Lee Partners.

But if you’re interested, you’d better have nerves of steel. Univision’s numbers are all over the place with regular impairment charges, huge interest expenses, big swings in tax outlays, and losses on investments in new ventures including Fusion and El Rey, and in the FIFA World Cup.

Much of the information is new, although some numbers have dribbled out in filings for debt owners. Here are a few of the things the company disclosed about its portfolio of assets that include the Spanish language Univision broadcast network, 60 TV stations, nine cable networks including Galavision, 67 radio stations, and a fleet of digital destinations (including Variety Latino with Deadline-owner Penske Media Corp.)

Univision offers a wild ride: Last year Univision was barely profitable — it saw just $1.9 million in net income on $2.9 billion in revenues. The good news is that the numbers are headed in the right direction. The top line was up 10.8% vs 2013, and although the company reported a $216.2 million profit that year it would have been a big loss without an unusual $462.4 million tax benefit. Univision lost $14.4 million on $2.4 billion in 2012.

Investors will have to believe deeply in the Univision story. Some $8.2 billion of its assets — nearly 79% of the total — represent intangible things, such as the reputation of its brands, that are hard to measure and vulnerable to writedowns. Univision also has $10.3 billion in long term debt; about 20 cents of every dollar in sales goes to pay interest. If there’s a problem, the bankers’ interests will come first. The company is registering itself as a “controlled company,” which means a majority of the board doesn’t have to represent ordinary shareholders.

Fusion’s still finding its financial footing. Univision forged its 50-50 joint venture with Disney in 2012 to create the English language news and lifestyle TV and digital operation. It launched in October 2013. But Univision recorded $35.2 million in losses from 2013 through the first quarter of 2015 related to its investments. Univision isn’t required to put in more, but it warns that “we will need to make additional investments” to get it on its feet. Indeed, in 2015 it made a $11.5 million capital investment for Fusion’s general use and $5.6 million for its digital business.

The venture has a way to go before it becomes profitable. Fusion lost $35 million last year, with $63.4 million in operating expenses more than eating up $28.1 million in revenues.

So is El Rey. The English language general entertainment cable channel, a partnership with filmmaker Robert Rodriguez,  launched in December 2013. Univision has put up $130 million for equity and debt that’s convertible to equity, although it can’t go above 49% through 2019.

For now El Rey is in the red: It lost $72.3 million last year with $109 million in expenses on $44.9 million in revenues. The previous year it lost $15 million with $11.9 million in expenses and just $200,000 in revenues.

Univision has a lot riding on the English language ventures as more U.S. Hispanics become bilingual. If Fusion and El Rey don’t work, it warns, then “we may lose audience share to competing English language or bilingual programming which could lead to lower ratings and consequently, lower advertising revenues, which could have a material adverse effect on our business, financial condition and results of operations.”

But CEO Randy Falco is doing fine. His contract from last year runs to the beginning of 2018, and automatically renews unless he’s terminated. The company paid him $5.5 million last year. The package included $1.75 million in salary, nearly $700,000 in option awards, $3 million in non equity incentives, and about $98,000 in other compensation — almost all of it for commuting expenses.

Univision will compensate him for the excise taxes he might have to pay if the IRS deems any of his stock to be an “excess parachute payment.” And he’d have a soft landing if someone takes over Univision and lets him go. The package, which includes accelerated stock vesting, would have been worth $28.7 million if he had been axed at the end of 2014.

The World Cup didn’t score. Univision negotiated its World Cup contract in 2005 and paid $170.8 million at the end of 2013 for the rights to the 2014 games. But by then it concluded that “the fair value of the 2014 World Cup media rights declined as compared to its carrying value,” according to the SEC filing. Univision took an  $82.5 million writedown. (Earlier it took a $79.6 million charge for the 2010 rights.)

With those payments factored out, the 2014 broadcasts added $22.1 million to Univision’s operating income line. The games cost $152.1 million to produce, and brought in $174.2 million in incremental advertising.  Univision won’t have the World Cup in  2018, 2022 and 2026.

Univision needs the FCC to play ball. In addition to the IPO, Univision said today that it renewed an alliance with Groupo Televisa. The Mexico-based programmer will convert $1.125 billion in debt to equity warrants, potentially giving it 22% of Univision’s voting shares. That brings it close to the FCC’s 25% ceiling for foreign ownership of U.S. broadcast properties.

The companies say that they’ll petition the FCC for a declaratory ruling to raise the foreign ownership limit to 49% and authorize Televisa to own as much as 40%. Univision says that if its current private equity owners sell 75% of their stock, then it will ask the FCC to approve a transfer of control to its public shareholders.

And if the FCC doesn’t agree? Univision can refuse to let other non-citizens buy its shares. That would make it hard to sell the stock and raise money.

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