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Federal regulators are nearing a key decision on the fate of Univision Communications Inc.’s acquisition of Hispanic Broadcasting Corp. Several sources said the Department of Justice’s antitrust division expects to decide within a week whether there is a single Spanish-language broadcasting market or separate markets for Spanish-language radio and Spanish-language television. A finding of separate radio and television markets would expedite clearance of the $3 billion transaction and may permit the companies to close the deal by the end of the year as they initially forecast. The only other dispute to be resolved would be Univision’s minority stake in Entravision Communications Corp., a Spanish-language radio broadcaster. Univision is expected to convert that stake into nonvoting shares to alleviate antitrust concerns. Yet a decision that there is a single Spanish-language, radio-and-television market would be a major antitrust roadblock for the merger and could be enough to sink the transaction. The reason: Univision is the largest Spanish-language television company while HBC is the biggest Spanish-language radio operator. Combining them would create a dominant Spanish-language broadcaster. Los Angeles-based Univision agreed June 12 to acquire Dallas-based HBC in an all-stock deal initially valued at $3.5 billion. The antitrust division issued its second request Sept. 12, causing the spread on the deal to double. It has pretty much remained between 50 cents and 60 cents for the last two months. Spanish Broadcasting Systems Inc., which has tried to derail the deal since failing to acquire HBC itself, has told regulators the merger would give Univision control over 69 percent of total Hispanic broadcasting dollars in the top 10 markets, including 96 percent in El Paso, Texas, 86 percent in San Diego, and 81 percent in Houston and San Antonio. The antitrust division typically discounts complaints by competitors, though it does use the information to better understand the market and potential problems with the deal. Sources said it appears that the antitrust division is leaning toward finding separate markets for Spanish-language radio and television, which would be consistent with how it historically treats deals involving English-language broadcasters. Yet these same sources emphasized that the issue was far from settled and they were unwilling to rule out a finding of a joint market. A Univision spokeswoman said the companies remain confident that they will be able to close the deal by the end of the year. She declined to comment further. Three sources said the DOJ investigation into the single versus dual market issue was prompted by a complaint from a Houston-based advertising agency, which has said it fears that Univision would use its combined control of television and radio outlets to make it more expensive to advertise to Spanish-speaking consumers. No one would identify the advertiser. Two sources said other advertising agencies have protested the deal, though some of those complaints focus more on whether Univision would be too big rather than whether it would wield anticompetitive market power. While a handful of advertising agencies have opposed the deal, a source said there have been others who have spoken out in favor of the transaction, or said that Spanish-language radio and Spanish-language television are separate markets. One industry source said the antitrust division would be hard-pressed to prove in court a finding of a joint Spanish-language radio and television market. Advertisers use the media differently, the source said. Radio is employed to promote products, while television is used for branding. That means companies cannot readily substitute advertising on television for radio or vice versa. The source also said that Univision is the fifth most-watched network in the United States, but it gets less for commercials than the smaller networks WB or UPN. Despite charging less, it also does not attract the same big corporate advertisers that are on the WB and UPN. This indicates that Univision does not have market power because it is forced to price below networks that attract fewer viewers, and yet it still is unable to bring aboard the major accounts, the source said. So far, it does not appear that any state attorneys general will try to derail the deal. Attorneys general in Florida, Texas, California and Nevada are monitoring the deal, but they appear to be working closely with the antitrust division and would likely join any consent decree. Robert Doyle Jr., a partner at Powell, Goldstein, Frazer & Murphy in Washington, D.C., said complaints by advertisers would have resonance with the antitrust division because regulators evaluate broadcast mergers based on their impact on advertisers. This is because advertisers are the ones that pay for the commercials while viewers get the programming for free — so consolidation that permits the broadcaster to raise rates would hurt advertisers, not viewers. “If they find a combined radio-television broadcast market for Spanish-language advertising, it would suggest they have serious complaints from advertising agencies and advertisers,” said Doyle, who has been monitoring the deal. “That would make this a serious case.” �Copyright 2002, The Deal, LLC. All rights reserved.

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