Entravision Stock Slides Amid Concerns Over Univision Deal

By DARRELL SATZMAN
Staff Reporter

No company is an island, but some are more closely entwined than others. Since going public in 1996, Hispanic media company Entravision Communications Corp. has built a sizable presence nationwide, with 22 television stations, 58 radio stations, a newspaper and 11,400 outdoor billboards in New York and California.

But its fortunes have been linked to those of Spanish broadcasting giant Univision Communications Inc. Besides owning a large portion of Santa Monica-based Entravision, Univision supplies programming to 90 percent of its television stations.

Moreover, Univision long has had an eye on acquiring Entravision, a scenario that became less likely with the completion last week of Univision's $2.5 billion merger with Hispanic Broadcasting Corp., a competitor to Entravision in some radio markets, including Los Angeles.

To get Justice Department approval for that deal, Los Angeles-based Univision agreed to divest most of its 27 percent stake in Entravision. The divestment was prompted by concerns that Univision would have excessive clout in the U.S. Hispanic marketplace.

Univision must reduce its stake in Entravision to 15 percent over the next three years and to 10 percent at the end of six years. At current values, that comes out to roughly $100 million in stock. Univision also agreed to relinquish its voting power except on issues regarding the company's sale, merger or dissolution.

The deal is making Entravision investors nervous. Shares were trading last week around $5.90, just above their 52-week low. And several analysts have downgraded the stock to hold from buy.

Another blow came on Feb. 10, when Entravision reported a fourth-quarter loss of $5.6 million (5 cents a diluted share), or about a penny a share worse than the average estimate by analysts. That sent Entravision stock tumbling to $6.75 from $9.75 in less than a week.

Cost concerns

Despite its strong presence in the fastest growing segment of the U.S. media industry, Entravision remains dogged by concerns about its fundamentals, especially mounting expenses that have accompanied the push for growth.

"In the past 15 months, we've launched 22 media properties in the United States, and there's been some concern about the leverage we've taken on," said Walter Ulloa, Entravision's chairman and chief executive. "We need to do a better of job of explaining why our expenses are growing."

In particular, the company has taken heat for its $137 million acquisition of three Southern California radio stations in December from Big City Radio Inc.

Entravision moved its popular Super Estrella format to the three stations, from two existing stations in Los Angeles.

On one of the former Super Estrella stations, it launched a new English-language dance format aimed at attracting bilingual Latinos. On the other, it introduced a new Cumbia-style music format, popular in Mexico and Central America.

Ulloa said the changes, which give the company three formats in Los Angeles instead of one, will help double or triple its cumulative rating in this market within a year.

Not everyone is convinced.

In a Feb. 27 report, William Blair & Co. analyst Alissa Goldwasser was critical of the Big City purchase.

"Achieving the company's audience and revenue goals could be challenging, given the hyper-competitive nature of Spanish-language radio in Los Angeles," Goldwasser wrote. "The purchase could limit Entravision's ability to pursue acquisitions in attractive, fast-growing midsize Hispanic markets."

Buying up radio and television stations in second-tier Hispanic markets such as Las Vegas, Portland, Ore. and Hartford, Conn. has been at the core of Entravision's strategy.

Univision and Entravision don't compete head-to-head on the television side, but now that Univision is suddenly a force in Hispanic radio the two companies' stations will compete in some markets including Los Angeles, the nation's largest Hispanic radio market.

With its five local stations, Entravision now has parity with Univision, which picked up five L.A. stations in the Hispanic broadcasting deal.

"Right now our focus is clearly on the acquisitions that we've made and de-leveraging," Ulloa said.

With Entravision's television networks performing reasonably well in most markets, the news is not nearly as grim as its stock performance would indicate, said Keith Fawcett, an analyst at Merrill Lynch Global Securities.

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