Sony-led venture wins bidding for Telemundo

NEW YORK — Sony Pictures Entertainment is making its first foray into broadcasting as part of a consortium that Monday won the hotly contested auction for Spanish-lingo broadcaster Telemundo Group Inc. with an offer of $44 a share, equivalent to about $537 million plus $200 million in debt.

As expected (Daily Variety, Nov. 19), Sony made its successful bid in a group that also included Tele-Communications Inc.’s programming affiliate Liberty Media and two investment firms that now control Telemundo — Apollo Management and Bastion Capital Fund.

The new group plans to overhaul Telemundo’s programming under the direction of Sony and Liberty, with Sony-produced Spanish-language entertainment and possibly sports programming owned by Liberty’s sports venture with Fox, execs said. The group is committed to retaining Telemundo as a Spanish-language broadcaster, however.

Telemundo owns eight full-powered TV stations in most of the major markets, but its network also has affiliates that give it coverage of 85% of the national audience. In the past five years the network’s share of the Spanish-language primetime audience has dropped from 40% to 13%, estimates Schroder & Co. analyst Niraj Gupta, because Telemundo’s main rival, Univision, has been programming the more popular novelas from Mexico’s Grupo Televisa.

Red ink

That has produced plenty of red ink for Telemundo, although it lately has been taking steps to change its programming and cut its losses. In the first nine months of 1997 it lost $17.1 million, down from $27.6 million a year earlier. In July, Telemundo hired Lazard Freres to find a strategic investor who could help improve the company’s programming.

Regulatory restrictions on Sony and TCI’s ownership of TV stations mean that Apollo and Bastion, which now own 35% of Telemundo, will own 50.1% of the equity after the deal. Sony will own 25%, as much as foreign ownership laws permit, while Liberty will own 5% voting stock and 20% nonvoting. Liberty’s ownership is restricted because it is an affiliate of a cabler.

To ensure their control over programming, however, Sony and Liberty will jointly buy the company’s network assets for roughly $75 million as soon as the corporate acquisition is completed, Liberty VP David Koff said Monday. The network assets are mainly licenses with the affiliate stations and a national advertising sales effort.

Sony will be the managing partner of the network, with plans to “produce a wide variety of Spanish-language entertainment, some of which will be based on popular entertainment formats owned by SPE,” it said in a statement. It also plans to “focus on promoting and branding the network.”

“The key to success in this venture will be our ability to tap into a vibrant, Spanish-speaking, creative community to provide original programming that can make Telemundo extremely competitive,” said SPE co-president Jeff Sagansky in a statement.

Jon Feltheimer, exec VP of Sony and president of Columbia TriStar Television Group, noted that Sony “already creates programming in eight languages and the newly revitalized Telemundo brand will become the centerpiece of our worldwide Spanish-language programming strategy.”

Few details offered

Sony provided few details about its plans, however, apparently wanting to keep Univision in the dark about the new programming look. People close to Sony noted that the deal is consistent with its efforts to produce foreign-language programming overseas, such as in India.

“Sony is the primary programming driver and we will offer up whatever we can,” Liberty’s Koff said. That could include sports rights owned through Fox/Liberty, although he said this would have to be negotiated with Fox.

Similarly, Koff said Liberty’s 49%-owned Discovery Communications has a Latin American service and Liberty would approach Discovery to see whether it would produce a programming block for Telemundo.

Koff said the network would have its own CEO, yet to be selected. He said the group had not yet decided on the management team for the station group, although he noted that it would work with Telemundo CEO Roland Hernandez “through the transition period and see what our mutual desires are.”

Debt-financing

None of the joint venturers would give any details about the financing for the deal, although Koff said the purchase would be largely debt-financed. A credit line is being negotiated with Credit Suisse First Boston, which advised Sony on the acquisition, and CIBC.

At $44 a share, buying Telemundo’s equity will cost $540 million. Assumption of debt costs another $200 million. While Apollo and Bastion already own 35%, the two companies are expected to sell their stock in the offer and reinvest some money as their equity contribution — likely to be roughly $50 million each.

Sony and Liberty will have to put up more because of the cost of buying the network, taking their financial contribution closer to $80 million each or so.

Bidding intense

The group beat out offers from Clear Channel Communications, bidding with TV Azteca, and News Corp., bidding with Abry Partners and Thomas Lee. People close to the situation said the bidding was extremely intense over the weekend, with bidders raising their prices, and the deal was not sealed until early Monday afternoon. Calls to Telemundo CEO Roland Hernandez were not returned.

While the price was higher than the $37-$38 value some analysts put on Telemundo, people close to the deal say Telemundo was hoping to get as much as $50 a share based on the value of TV stations in today’s market. Telemundo stock closed up $2.06 to $41.43.

But to get to those higher prices, bidders would have had to be prepared to convert the stations to English-language. And that presented some problems, which put off bidders.

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