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Lo mas grande deal de NBC

Spanish-language TV is a niche within the overall industry, but it's a big niche—35 million viewers with an estimated $500 billion in spending power—and the fastest-growing segment of the TV business right now. But, while Hispanic TV accounts for about 14% of all television viewing, it generates just 3% of TV advertising.

That growth opportunity, coupled with operating synergies that two broadcast networks and station groups naturally have, grabbed NBC Chairman Bob Wright's attention several years ago. Last week, Wright and NBC took the plunge and bought Telemundo.

After a year of looking closely at Telemundo and the Hispanic market, NBC signed a definitive deal to acquire the No. 2 U.S. Spanish-language network for a total of almost $2.7 billion including debt. It's NBC's biggest acquisition ever.

The deal prompted speculation that perhaps another big media company would swoop in to gobble up Univision, the nation's dominant Spanish-language network. Its stock shot upward last week, leading to speculation that it will be the next to be sold. In fact, several months ago, Viacom inquired about Univision's availability and was rebuffed. Sources at Univision say it's not for sale—not yet anyway.

The NBC-Telemundo deal is structured so that sellers (Sony, Liberty and other investors) get paid half in GE stock and half cash. There is no breakup fee and no collar on the stock price.

NBC execs say it could take nine months to a year for the deal to close. It's a definitive, signed agreement subject only to regulatory approvals at the FCC and the FTC, which will scrutinize it for antitrust issues.

The parties said they expect to get all sorts of synergies out of the deal, and then some. The networks have co-located owned stations in five markets and in Los Angeles, where Telemundo already has a duopoly; NBC would make it three. The network said it will ask the FCC for a waiver to keep all of them.

The four other markets where NBC will get English-Spanish duopolies are New York, Chicago, Miami and Dallas.

You can imagine what NBC might do with them. In news and sports, both networks will collaborate closely, said NBC COO Andrew Lack, in everything from repurposed newscasts to sporting events.

As part of the agreement, NBC has signed Telemundo's top three executives to long-term contracts, said NBC CFO Mark Begor, who led NBC's negotiating team. Those executives are Telemundo CEO James McNamara, COO Alan Sokol, and CFO Vince Sadusky.

The price NBC is paying for the Hispanic network equals about 28 times estimated 2001 cash flow, expected to be $70-some million. That's a lot, but Wright stressed that, under NBC, Telemundo's earnings will grow quickly—to $250 million in the first full year (2003) of NBC control. Looked at from that perspective, he said, the price-to-cash-flow multiple comes down to "the very low double digits."

The growth Wright talks about is expected because of the sales clout NBC brings to the TV marketplace, coupled with the double-digit growth that the Hispanic market has realized in recent years and expects in the years to come. In addition, the networks expect to exploit lots of operating efficiencies, savings that will go directly to the bottom line.

And despite Univision's dominance in both advertising and audience share, Wright said, "Telemundo has enormous potential." The network will generate about $400 million in revenue in 2001, and Wright sees that leaping to $600 million by 2003.

"This is exactly what we're trying to do" as a long-term strategy, he said. "We're adding revenue and earnings, and we're doing it in a way that is completely complementary with the business we're in."

Much of the synergy will come in the sales area and the clout that NBC has in the market, Wright said, where NBC and Telemundo will have a combined sales force of 800 generating dollars for both entities.

Potential news synergies exist at both network and local levels. NBC's Begor said that, in certain markets, both NBC and Telemundo stations have bilingual reporters that will do stories for both. And, clearly, the NBC News production infrastructure will help ramp up the quality of the Hispanic network's national and local newscasts, said Telemundo's McNamara. NBC's clout will also help Telemundo upgrade its distribution, which currently reaches around 90% of the 35 million Hispanics in the U.S., he said.

According to NBC's Lack, Telemundo will have a role in producing soccer coverage for NBC during its Olympics games, and the two networks will work on other sports projects as well. He also said NBC wants to create Spanish-language versions of shows like Access Hollywood
and Weakest Link
for Telemundo. "This deal just makes so much sense," he said.

The Telemundo deal has no bearing at all on NBC's interest in Paxson, and NBC is still interested in exercising its option to acquire most of Paxson next year, Wright said. "Paxson is on track." But NBC can't acquire more of Paxson as long as the 35% broadcast station ownership cap remains.