Grupo Televisa SA (TLEVICPO), the world’s biggest Spanish-language broadcaster, fell the most in almost a year in Mexico City trading after agreeing to buy a 50 percent stake in Grupo Iusacell SA for $1.6 billion.
Televisa fell 2.55 pesos, or 4.5 percent, to 54.15 pesos at 4 p.m. New York time. The shares, down 15 percent this year, suffered their worst three-day drop since November 2008 after Televisa disclosed talks with Iusacell on April 5.
The purchase gives Televisa a way to offer clients mobile-phone service in addition to the packages of home-phone, Internet and TV sold by its Mexican cable units. Iusacell, which filed for bankruptcy protection last year, gets new funding after struggling to gain market share against billionaire Carlos Slim’s America Movil SAB.
Televisa, based in Mexico City, said today it will pay $1.57 billion for debt convertible into Iusacell equity, plus a direct payment of $37.5 million. Televisa said it would own 50 percent of Iusacell after the conversion of debt.
The agreement values Iusacell at as much as 18 times enterprise value divided by its 2011 earnings before interest, taxes, depreciation and amortization, or Ebitda, estimated Tomas Lajous, an analyst at UBS AG, in a research note. Iusacell delisted its shares last year from Mexico’s stock exchange and hasn’t published earnings results since 2010’s first quarter.
“We still have some concerns on Televisa wanting to own equity in mobile,” said Lajous, who is based in Mexico City. The wireless business requires a higher degree of capital investment than Televisa’s traditional media business, he said.
4 Million Customers
Televisa agreed to pay an additional $400 million to Iusacell shareholders if Ebitda reaches a cumulative $3.47 billion between January 2011 and Dec. 31, 2015. Iusacell had Ebitda of about $150 million in 2009, according to Barclays Capital Plc.
“We’re not paying for the cash flows, so don’t try to look at this from an Ebitda multiple,” said Carlos Madrazo, Televisa’s investor relations officer, in a phone interview. “We’re buying into the spectrum, we’re buying into the network, we’re buying into the customer base and we’re buying into the strategic value of this business to us.”
Iusacell has more than 4 million subscribers and its wireless network covers 70 percent of the market, Televisa said. That gives it less than 5 percent of the Mexican market, behind America Movil’s 71 percent and Telefonica SA (TEF)’s 21 percent.
Iusacell filed for bankruptcy protection after failing to gain a broader share of the market following billionaire Ricardo Salinas’s takeover of the company in 2003. Salinas also controls TV Azteca SAB, which holds 30 percent of Mexico’s broadcast television audience, trailing Televisa’s 70 percent.
The control of Mexico’s broadcasting market by those two companies will give them a platform to advertise Iusacell’s service. America Movil’s Telefonos de Mexico SAB unit filed an antitrust complaint last month against Televisa and TV Azteca, accusing them of monopolistic practices in broadcast advertising. Televisa and Iusacell have also filed antitrust complaints against America Movil and Telmex.
Televisa and Iusacell don’t expect Mexico’s antitrust agency to block the agreement, said Luis Nino, vice chairman of the banking unit of Grupo Elektra SA, also controlled by Salinas. The companies haven’t yet solicited approval, an antitrust official who can’t be named under the agency’s policy said today.
“It would be very difficult for a participant that has 4 percent of the market to be limited or stopped on competition issues,” Nino told reporters today at a conference in Acapulco, Mexico. “What we want is to increase competition.”
Televisa planned to enter Mexico’s mobile-phone market last year by buying a stake in the local unit of NII Holdings Inc. (NIHD), the nation’s fourth-biggest carrier, for $1.44 billion. The company abandoned that plan after Iusacell went to court to challenge NII’s victory in a government auction of mobile-phone airwaves.
The extra yield investors demand to buy Televisa dollar bonds due 2018 instead of similar-maturity securities issued by the Mexican government climbed to 23 basis points today, the biggest gap since March 8, according to data compiled by Bloomberg. The spread has increased 8 basis points since April 4, the day before Televisa said it was in talks with Iusacell about a partnership.
“I just don’t know if it’s the best strategy for them right now,” said Jack Deino, who oversees $1.75 billion in emerging-market debt at Invesco Advisers Inc. in New York, in a phone interview. “They’re paying through the nose and they’re not even getting full control.”
Televisa’s debt ratings won’t be changed as a result of the Iusacell agreement, Fitch Ratings said today in a statement. The company’s debt is rated by Fitch at BBB+, or three levels above investment grade.
“Televisa has the cash on hand to make these investments, and the current business plan does not contemplate that additional capital investments will be required,” Madrazo of Televisa said.
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