Televisa CEO Defends Challenge to Slim as Investors Balk

Grupo Televisa SA Chief Executive Emilio Azcarraga
Grupo Televisa SA Chief Executive Emilio Azcarraga. Photographer: Marco Ugarte/Bloomberg

Grupo Televisa SA Chairman and Chief Executive Officer Emilio Azcarraga said investors should give his management team a “vote of confidence” as it spends billions of dollars to reshape the company into a media and communications empire in Mexico and the U.S.

Televisa has dropped 10 percent in Mexico City trading since April 4, the day before the company disclosed it was in talks with Grupo Iusacell SA, Mexico’s third-largest wireless carrier. The companies announced April 7 that Televisa would buy a 50 percent stake in Iusacell for $1.6 billion.

Investors such as Jack Deino of Invesco Advisers Inc. have said Azcarraga is overpaying for a company that has failed to gain market share against billionaire Carlos Slim’s America Movil SAB. Azcarraga said Iusacell is a key piece of his plan to make Televisa’s communications companies a better alternative for Mexican consumers.

“They need to have confidence in the management of Televisa,” Azcarraga, 43, said in an April 8 interview at Televisa’s Mexico City headquarters. “We have been a very good investment for them, and we’re very grateful that they have had confidence in us for a long time. I ask them to give us a vote of confidence.”

Azcarraga is taking Televisa from its roots as Mexico’s biggest broadcaster into direct competition with Slim, the world’s richest man. America Movil controls 71 percent of the country’s wireless market and 80 percent of wired phone lines.

‘Costly and Risky’

Gregorio Tomassi, an analyst at Banco Santander SA in Mexico City, called the Iusacell deal “costly and risky” in a research note last week. Deino, who oversees $1.75 billion in emerging-market debt at Invesco in New York, said last week in an interview that Televisa is paying about 18 times Iusacell’s enterprise value divided by profits, while America Movil trades at about 6 times.

“It makes more sense for a company to pay shareholders a dividend and let them figure out what to do with the cash instead of investing it and overpaying,” Deino said.

Televisa fell 9 centavos to 53.94 pesos in Mexico City trading today. The shares have lost 16 percent this year.

Since taking over as CEO of Televisa 14 years ago, when his father Emilio died, Azcarraga has amassed stakes in a satellite TV operator, three cable-TV carriers and a nationwide telecommunications network. He’s also expanded to the U.S., striking a deal last year to spend $1.2 billion for a stake of as much as 35 percent of Spanish-language broadcaster Univision Communications Inc. to tap growth in the Hispanic market.

Televisa has grown at a 6.1 percent average annual clip under the younger Azcarraga, more than doubling to 57.9 billion pesos ($4.93 billion) in revenue last year.

‘Not Failed in Anything’

“Since I took over in 1997, everything I’ve said we’d do, we have done,” Azcarraga said. “We have not failed in anything.”

The company, which closed last year with about $2.7 billion in cash and short-term investments, has said it can fund the Iusacell deal and its other commitments without issuing new debt. While Standard & Poor’s last week affirmed its investment-grade rating on Televisa debt, the ratings company said Televisa’s investment strategy was “less conservative than in the past and not in line with our original expectations.”

Growth Potential

Billionaire Ricardo Salinas, who acquired control of Iusacell in 2003, failed on his own to find a way to break Slim’s stronghold on the market. In an interview last year, he cited poor management, saying the company had missed opportunities and that the problems were “self-inflicted.”

Debt problems hampered Iusacell’s ability to invest in its marketing and operations, Televisa Chief Financial Officer Salvi Folch said in an interview. Iusacell filed for bankruptcy protection in Mexico last year for the second time in four years.

Investors are overlooking the ability of Iusacell to grow with Televisa’s backing, Azcarraga said. The $1.6 billion will go completely to the business, allowing Iusacell to fund its expansion plans without worrying about paying its bills, Folch said.

Televisa’s cable carriers, Cablemas SA, Empresas Cablevision SAB and Television Internacional SA, and its satellite company, Sky, provide service in 5 million households, most of which aren’t Iusacell clients. The Iusacell stake allows Televisa to offer a “quadruple play” of home-phone, Internet, TV and wireless that America Movil can’t match, Azcarraga said.

The Univision agreement is an example of how Televisa is investing for growth and cost savings, he said. When Televisa sent its news anchor Carlos Loret to cover Japan’s earthquake, the journalist also covered the story for Univision. The companies are also coordinating plans for the next Olympic games and soccer’s World Cup, Azcarraga said.

Only ‘Good Investments’

“The largest country in the Spanish-speaking market is the Spanish-speaking U.S., and the growth that will be achieved in the next 10 to 12 years is very big,” he said. “Whatever we can do to grow in that business, it’s something we need to work on.”

While the series of deals in the last six months has depleted Televisa’s cash, the company will be able to replenish itself with cash from operations, Azcarraga said. The company remains open to acquisition opportunities such as Megacable Holdings SAB, though it doesn’t consider more consolidation in Mexico’s cable industry an urgent goal, he said.

“We had built our cash to invest in Univision and in telecommunications, and we have said that since 10 or 11 years ago,” Azcarraga said. “We always look at opportunities, but it’s only going to be opportunities that are good investments in what we do, which is production and distribution of content.”

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