Just a day after the Mexican government gave the license to use spectrum for a new network, Grupo Televisa S.A. (TV) agreed to buy a 35 percent stake in Univision Communications Inc. for $1.2 billion.
 
Grupo Televisa is the largest Spanish-language broadcaster globally and Univision is its U.S. based rival. The two companies have been competing for a long time to control the lucrative U.S. Hispanic television market. The total deal is worth around $3 billion.
 
As per the agreement, Grupo Televisa will pay $130 million in cash for a 5% stake and will lend convertible debt for the remaining 30% stake. Televisa will have a right to buy an additional 5% stake over the next five years, bringing its potential ownership up to 40%. But the existing American regulations monitoring foreign ownership of a U.S. broadcaster limit Grupo Televisa to about 25%.
 
The deal is beneficial to both Grupo Televisa and Univision. Televisa will allow Univision to access its content and then rebroadcast it on television and the Internet for a royalty.
 
Earlier in February, Televisa signed an agreement with NII Holdings (NIHD) to acquire a 30% stake in the latter’s wireless arm in Mexico, Nextel, for approximately $1.44 billion. Nextel is currently working on building its nationwide 3G wireless network.
 
Televisa expects to create an innovative converged communication platform by adding Nextel’s wireless and broadband services to its existing portfolio of pay TV services that provides market leading content and multiple distribution channels. This new venture will offer converged quadruple play services, comprising Wireless, TV, Broadband Data and Fixed line voice.
 
A considerable share of Televisa’s income comes from its U.S. operations, including the sale of content, website and cable television. However, recently, it has been hit by the prevailing adverse economic conditions. Although Televisa is in a better position to face the economic crisis compared with other companies, it will be hard to completely avoid the impact of the adverse economic scenario.
 
We maintain our long-term Neutral recommendation for Televisa. Currently, it is a short-term Zacks #3 Rank (Hold) stock.
 
NII HLDGS-CL B (NIHD): Free Stock Analysis Report
 
GRUPO TELEVISA (TV): Free Stock Analysis Report
 
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