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June 27, 2006

Univision Sale Supports Upside in CETV But Has Few Other Ramifications

The Univision (UVN) auction came grinding to an end with announcement that the company would be sold for $36.50 per share or $12.3 billion. The private equity financed buyers will also assume debt of $1.4 billion. After adjusting for acash and other assets, the total value of the deal is about $13 billion. Analysts estimate that UVN will have EBITDA in 2006 of about $800 million. Thus, the EBITDA multiple on the deal is about 16.2 times.

Based on initial estimates and media commentary a sale price of $36.50 is considered to be a poor outcome as many thought the company might fetch $40 or more per share. The perception of a weak auction was furthered by the apparent falling apart of the bidding group that included Grupo Televisa (TV).

However, I'd characterize the outcome of the UVN auction as "pretty solid." After all, 16 times current year EBITDA is a huge premium to where any other traditional media asset in the world is currently trading. At $40, the multiple would have been just short of 18 times, or roughly twice the multiple of any other media stock can name. I think the slight disappointment in pricing is attributable to rising interest rates (financing cost are up 50 basis points at least since the auction began), a tricky path to regulatory approval for TV's group, lack of bidders among the media conglomerates who are either divesting assets or just finishing acquisitions, and an acknowledgement that UVN's growth is moderating toward low double digits from 20% plus. The bottom line is I wouldn’t call a 16 multiple a failure. Rather, I consider it a fair price for a great asset....

I don’t see a lot of ramifications for other media stocks as a result of the UVN deal. In terms of US assets, UVN is a one of a kind company. I guess I feel better about management capital allocation and corporate strategy decisions at Disney (DIS) or CBS (CBS) or other entertainment conglomerates in that they held to their current business plans. Tribune (TRB) and News Corp (NWS.a) are rumored to be considering sale of broadcasting assets but UVN's stations that serve fast growing and rising income Hispanic audiences are worth far more than mature affiliates of the major networks or new nets like the CW.

I do stand by my prior posts that said that my long-time favorite, Central European Media Enterprises (CETV), is worth the same multiple as UVN. The market has traditionally not paid anywhere near the multiple for CETV that it did for UVN. However as CETV has grown via acquisition toward $200 million (2006) and then $300 million (2007) in segment EBITDA, I think the comparisons gain more support. Granted, US investors are unlikely to pay a full multiple for CETV given the emerging markets risk. However, if CETV hits my estimates it is trading at just 10 times 2007 EBITDA.

If Ronald Lauder, CETV's controlling shareholder, took the same path as UVN controlling shareholder Jerrold Perenchio, and put CETV up for sale one year from now, I'd be willing to bet that CETV would fetch a multiple darn close to UVN's sale price. CETV presently reaches 90 million people, far more than UVN, and the company has outlined a multi-year growth plan for sustained 15-20% EBITDA growth. Given the paucity of true growth assets in media, I think that profile could earn a mid-teens multiple for another one-of-a-kind asset. Furthermore, there would be no bidding complications for any of the major global entertainment conglomerates.

At 16 times my 2007 estimate, which is built off detailed management guidance, CETV would be trading at $100. I don’t expect a sale but I think the UVN deal provides great support for CETV at current trading levels of 10 times EBITDA or $60.

Posted by Steve Birenberg at June 27, 2006 02:38 PM in CETV