Televisa Remains Neutral - Analyst Blog

Our long-term recommendation for Grupo Televisa S.A. (TV) is Neutral, which means the stock will perform in line with the broader market. Currently, it is a Zacks #3 (Hold) Rank stock. Televisa is a dominant force in the Mexican media business. The company is almost a monopoly with around 70% of the Mexican open television market.

Televisa has decided to purchase a 35% stake in its U.S. rival Univision Communications for $1.2 billion. Per the agreement, the company will pay $130 million in cash for a 5% stake and will lend convertible debt for the remaining 30% stake. Televisa will have the right to buy an additional 5% stake over the next five years, raising its potential ownership up to 40%. But the existing American regulations cap foreign ownership of a U.S. broadcaster to 25%.

Televisa now wants to concentrate on its core entertainment content creation and distribution businesses rather than bearing huge  expenses for a new venture. The deal with Univision will come in handy for Televisa to pursue this goal. 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.

We believe the deal will benefit both Televisa and Univision. Televisa will allow Univision to access its content and then rebroadcast it on television and the Internet for a royalty. So far, the two companies have been competing for a long time to control the lucrative U.S. Hispanic television market.

Nevertheless, we also believe that Televisa's inability to enter the wireless market of Mexico is a huge setback. Televisa has put aside its wireless initiatives, at least for the time being. Last October, the company and its partner NII Holdings Inc. (NIHD) announced their decision to dissolve their partnership in Mexico due to a series of legal battles with competitors. Undoubtedly, a foothold in the profitable Mexican wireless market would have opened up a strong revenue stream for Televisa.

 
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