NEW YORK — Gooooooooooooooooooal!
The signature shout of Telemundo soccer announcer Andres Cantor was echoed by NBC execs Thursday as they finally unveiled their deal to buy the No. 2 Hispanic broadcaster for nearly $2 billion in cash and stock, plus the assumption of $700 million in debt.
News came just hours after NBC parent GE reported that third-quarter results came in on target, excluding insurance losses related to the terrorist attacks. Revenues at the Peacock fell an alarming 45% amid the all-around ad market slump and losses from commercial-free news broadcasts during the disaster, but the bottom line shrank by only 13% as the network improved margins.
Merger, the first media deal since the Sept. 11 attacks sent shock waves through the entertainment biz, gives NBC eight new stations, including flagship Hispanic outlets in the fast-growing markets of Gotham, L.A. and Dallas, as well as an entry point into one of the nation’s fastest-growing media segments. It also gives Telemundo a big leg-up in its battle against far larger rival Univision.
“We’re coming, Jerry,” Telemundo prexy-CEO Jim McNamara said, referring to Univision topper Jerrold Perenchio. “Watch your back.”
Wall Streeters have long salivated over Spanish-language media, which jumped to national prominence earlier this year after census figures showed an explosion in the U.S. Hispanic population.
“This is the most dynamic TV market in the U.S.,” NBC chairman-CEO and GE vice president Bob Wright said. “Fourteen percent of TV viewers are Hispanic, but the ad dollars that go with that market are less than 3% of the market. It’s very thinly penetrated and expanding rapidly.”
The hefty pricetag, which amounts to roughly 20 times Telemundo’s cash flow this year, raised eyebrows in the financial community. But it’s a far cry from the $3 billion the network is said to have demanded when potential buyers first came courting.
A victory over Viacom
NBC apparently beat out at least one rival suitor, CBS parent Viacom, which had put in a bid but later balked at the valuations on the table.
The deal’s biggest winners may be the consortium of companies, including Sony Corp. of America and John Malone’s Liberty Media, and investor Leon Black, that bought Telemundo in 1998 for about $539 million. Last year, Council Tree Hispanic Investments paid $181 million for an 18% stake in Telemundo, implying an overall value of roughly $1 billion.
Even at a purchase price of $2 billion, NBC execs view the deal as a long-term moneymaker. Wright sees synergies and cost savings worth “tens of millions” annually once the deal is consummated, including shared programming among news, sports and entertainment shows, as well as cooperation between the two webs’ ad sales forces.
Exec added that cash earnings for 2003 (the first full year of merged operation) will be $200 million-$250 million.
Maintain media presence
Deal also gives NBC parent General Electric a chance to quell rumors that the conglom may get out of the broadcast biz. While NBC ranks No. 1 among the broadcast nets in ad revenue and in the key adults 18-49 demographic, it is the only broadcast net not aligned with a studio or other big media company.
Jeffrey Immelt, who recently succeeded Jack Welch as GE topper, has indicated that he plans to keep NBC in the family and will continue to expand broadcasting assets. In addition to NBC, the company owns the financial news cable net CNBC and co-owns MSNBC with Microsoft. It also has ownership stakes in A&E, the History Channel, Bravo, AMC and the Independent Film Channel, as well as a one-third stake in Paxson Communications, parent of the Pax broadcast net.
The acquisition of Telemundo would not only rep an increased commitment on GE’s part, it would add a big chunk of debt to NBC’s balance sheet, making it less appealing to potential buyers.
NBC won’t have to jump through too many regulatory hurdles to seal the Telemundo deal. Even after the acquisition, the Peacock will be under the 35% Federal Communication Commission cap on nationwide market share. NBC does plan to apply for a waiver permitting it to own three stations (including Telemundo’s Channel 22) in L.A.; current duopoly rules allow broadcasters to hold two outlets per market.
Further troubles could arise should NBC attempt, as is expected, to buy a bigger share of Paxson after digesting Telemundo’s 10 stations. The Peacock, which already holds a 33% stake in Pax, would find itself on the wrong side of the government’s ownership caps if it completes both acquisitions.
General Electric shares closed up 2.7% Thursday at $38.94, while the stock prices of Telemundo sellers Sony and Liberty Media each added 8% in value. Meanwhile, rival Hispanic net Univision rose 7.7%.