Haim Saban pulled off a stunning upset last week when his investor consortium won the bidding to acquire Los Angeles-based Univision Communications Inc.

The Beverly Hills billionaire offered to pay $36.25 per share for a total price of $12.3 billion, plus the assumption of $1.4 billion in debt. That narrowly defeated a competing bid of $35.75 from Grupo Televisa, the Mexican broadcaster that produces most of the hit shows on Univision's TV network.

But the game hasn't quite played out.
Back in May 2005, Televisa sued Univision for breach of contract, and Univision later countersued. Although the two companies have a programming agreement that lasts until 2017, the legal maneuvers indicate that Televisa's real objective in the suit is to either end the deal or negotiate a new one with better financial terms.

If Televisa had won the takeover auction, the lawsuit would have become moot. Instead, the new owner inherits a dysfunctional relationship with Univision's most important business partner, which could well be nursing a grudge. Televisa won the first round of bidding, but Univision allowed the Saban group to sweeten its offer while denying that chance to Televisa.

"Grupo Televisa S.A. is disappointed with the outcome of the Univision auction," the Mexico City-based company declared in a statement. "Notwithstanding our repeated offers to discuss all aspects of our proposal including price, Univision and its advisers refused to enter into any discussions with us after we submitted our initial bid."

The acquisition process figures as the final chapter in a long-running spat between Univision chairman A. Jerrold Perenchio and Televisa chief executive Emilio Azcarraga Jean. As a fresh character in this telenovela-like scenario, Saban has the opportunity to clear the air and establish better relations with his Mexican partner.

Since low-cost Televisa programming is a crucial competitive advantage Univision enjoys over NBC Universal Inc.'s Telemundo network or third-place Azteca America Network, Saban faces a difficult balancing act. If he insists on enforcement of the current programming licensing agreement, Televisa could respond with more legal wrangling and operational sabotage of the deal, as Univision alleges in its countersuit. On the other hand, if Saban re-negotiates the deal, he could significantly alter the economics of the Univision business model the very asset he just paid billions to buy.

Merrill Lynch & Co. analyst Jessica Reif Cohen believes the sides will find a middle ground. "The Saban group would likely be willing to improve the terms in exchange for either an extension of the term or as part of a put-call arrangement with Televisa providing the Saban group with an exit," she wrote to investors.

A put option gives a shareholder the right to sell shares at a specific price. A call option gives a trader to right to buy shares at a certain price. Working together, a put-call system would allow the Saban group to sell its shares to Televisa at a preferred price without interference from arbitragers or other traders.

Both Reif Cohen and her Merrill Lynch colleague Michael Kopelman, who covers Televisa, assume that eventually Saban will sell Univision and, from a strategic perspective, the logical buyer remains Televisa. And Saban will work to mend fences with Televisa while growing the revenues organically.

But in its statement after the auction, Televisa ominously vowed to "vigorously pursue its options to build its potential in the growing U.S. Hispanic marketplace." Those options include starting a network or selling its programs to other networks, pending the resolution of the licensing suits.

While Reif Cohen and Kopelman discount the possibility of Televisa launching a network, Hector Orci, chairman of adverting agency La Agencia de Orci y Asociados in Los Angeles, takes it seriously.

Televisa will get about $1 billion for its equity stake in Univision, and Orci notes that U.S. capital has moved aggressively into the U.S. Hispanic media markets. Given sufficient money and Televisa's expertise in programming, advertising sales, and Mexican-American consumer psychology, Televisa together with U.S. capital partners could give Univision a run for its money.

For now, Orci expects little change in Univision's day-to-day operations. "Univision's valuing of the market has been a large part of its success," said Orci. "I would hope the new folks would honor their achievements."

In evaluating the soon-to-close Perenchio era of Univision history, Orci gives the former Hollywood agent and his team a lot of credit. "I respect what they have done for Hispanic television. They brought it up to par with what used to be general market TV and surpassed it in many areas," he said.

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