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Univision Communications Inc. and Hispanic Broadcasting Corp. had no sooner begun to bask in the announcement of their $3.5 billion all-stock deal Wednesday, when a skirmish between two peripheral players pushed the merger partners off center stage. The spat erupted at 10:21 a.m. when Spanish Broadcasting System Inc., the country’s No. 2 Spanish-language radio broadcaster, filed suit not only against No. 1-ranked Hispanic Broadcasting but also against the leading radio-and-outdoor company, Clear Channel Communications Inc. David Boies of Boies, Schiller & Flexner filed the suit on behalf of Miami-based SBS, alleging that the two defendants “adversely affected SBS’s ability to raise capital, depressed SBS’s share price, impugned the reputation of SBS, made station acquisitions more difficult and interfered with SBS’s business opportunities and contractual arrangements.” The charges held special resonance in that a banker involved in negotiations for Dallas-based Hispanic Broadcasting depicted SBS as “a legitimate contender” for the radio group that Los Angeles-based Univision had just taken off the market. “Their price was there,” the banker said, “but Univision had a more complementary platform, offered better diversification in terms of media assets and seemed to have fewer regulatory issues. San Antonio-based Clear Channel, which owns 26 percent of Hispanic Broadcasting, waited until early afternoon to dismiss SBS’ allegations as “absurd and unfounded.” In a remark attributed to CEO Lowry Mays, Clear Channel said: “These charges are false, and we will, as we always do with frivolous lawsuits, fight vehemently to defend our position.” The deal’s announcement and the SBS-instigated diversion took their toll all the same, with only Hispanic Broadcasting’s shares ending the day’s trading with a gain. Its 6.3 percent rise — aided by the 31 percent overnight premium built into deal terms — compared with declines of 15.5 percent for the buyer, Univision, 7.9 percent for Hispanic Broadcasting’s partner, Clear Channel, and 7.9 percent for the litigant and competitor, SBS. Analysts were more upbeat than the market, despite the outsized takeout multiples commanded by Hispanic Broadcasting. In terms of sales, for instance, the acquired company negotiated 14.3 times its revenue for the trailing 12 months. In cash flow terms, a Merrill Lynch & Co. analyst, Keith Fawcett, put the multiple at 40 times Ebitda, as estimated for 2002, and 34 times Ebitda, as projected for 2003. However, in maintaining its “strong buy” on Univision, Merrill Lynch cited its belief that the “combined company will be a vertically integrated powerhouse in Spanish language media.” Univision Executive Vice President Andy Hobson had already warned in a conference call Wednesday against assessing the deal on traditional metrics alone. After citing the $600 million that Hispanic Broadcasting had recently spent on start-up stations, many of which are just now coming into profitability, he said: “Cash-flow multiplies, given these dynamics, are not the way to go.” Better, he said, to focus on such attributes as the deal’s being accretive to free cash flow in the first full year following the close and beyond. Even before synergies, Hobson projected the accretion would add 2 cents a share, or 3 percent, to 2003 cash flow. And with a modest assumption of $13 million in synergies, he said, look for an accretion of 4 cents a share, or 6 percent. Actual deal terms call for each share of Hispanic Broadcasting common stock to be exchanged for a fixed 0.85 shares of Univision Class A common stock. This exchange, the companies said, represented a 26 percent premium to Hispanic Broadcasting’s 30-day average share price leading into the announcement. Terms also include a $100 million breakup fee, which promises to be moot in light of approvals already obtained from the non-regulatory parties that control the deal’s fate. Hispanic Broadcasting’s two largest shareholders — the Tichenor family and Clear Channel Communications — have agreed to vote in favor of the transaction, as has Jerrold Perenchio, the chairman, president and CEO of Univision, who also ranks as its controlling shareholder. The companies said the transaction is expected to close by year’s end, leaving Univision shareholders with a 73.5 percent stake in the remaining entity and Hispanic Broadcasting shareholders with a 26.5 percent. Meanwhile, Clear Channel’s 26 percent economic interest in Hispanic Broadcasting would get diluted to about 7 percent of its parent. In terms of assets, the combined entity will add Hispanic Broadcasting’s 55 Spanish-language radio stations to a company that virtually dominates all other U.S. Spanish-language media. Indeed, the release announcing the deal cited six areas where an enlarged Univision would rank as the No. 1 Spanish-language player: radio, television, cable, TV station group, online portal and Latin record label. Specific operations of the acquirer already include Univision Network, the most-watched Spanish-language broadcast TV network in the U.S., which reaches 97 percent of U.S. Hispanic households; TeleFutura Network, the new 24-hour general-interest Spanish-language TV network, which reaches 72 percent of U.S. Hispanic Households; Univision Television Group, which owns and operates 22 television stations; TeleFutura Television Group, which owns and operates 28 television stations; Galavision, the country’s leading Spanish-language cable network; and Univision Music Group, which includes the Univision Music label, Fonovisa Records label and a 50 percent interest in Mexican based Disa Records label. In a very real way, then, Hispanic Broadcasting’s radio stations represent Univision’s one missing piece. Or, as UBS Warburg’s Jeffrey Sine, the lead banker on the deal for Univision, put it: “It really does fill out the story in a very big way.” Opposite from UBS Warburg on the deal was Credit Suisse First Boston, which was financial adviser to Hispanic Broadcasting. Salomon Smith Barney Inc. was also brought in to assist Clear Channel. �Copyright 2002, The Deal, LLC. All Rights Reserved.

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