Grupo Televisa announced that it will merge its Content business with Univision in an historical transaction that will create the leading global Spanish-language media company (Televisa-Univision). Furthermore, according to the press release, the combined company will have the largest library of proprietary Spanish-language content, which together with its production capacity and audience scope (leader in the two largest Spanish-speaking markets in the world: Mexico and the US), would provide a competitive advantage to accelerate its digital transformation and participate in the global Spanish-language streaming business opportunity.
For the transaction, Tlevisa will contribute its Content assets (excluding real estate, broadcasting licenses and transmission infrastructure in Mexico) with a total value of US$4.8 billion, comprised as follows: (1) US$3.0 billion in cash; (2) US$1.5 billion in Univision shares (US$750 million in common stock and US$750 million in Series B preferred stock with an annual dividend of 5.5%); and (3) US$300 million from other commercial considerations. The merger will be financed through: (a) a US$1 billion equity investment (in Series C preferred stock) by Softbank, together with ForgeLight (which in turn has participation from Google and The Raine Group); and (b) US$2.1 billion in debt commitments. Finally, the transaction is expected to be completed in 2021, and is subject to the usual closing conditions, regulatory approvals in Mexico and the US, as well as the approval of Televisa's shareholders.
Positive implication: Undoubtedly, we believe this news should be well received by the market, as it detonates the value of Content, implying an additional 11% over the value estimated through our sum-of-the-parts approach and PT of MXN 47.00. On one hand, the US$3 billion cash that the company would receive represents, in our view, the fair valuation of the business implying a FV/EBITDA LTM multiple of 5.0x (equal to our 2021E target multiple). Meanwhile, the additional value for TV shareholders would come from the investment in Univision. For the latter, in our model we assume a 0.6x P/B multiple (~ US$626 million for a 36% stake or what would be equivalent to US$783 million for 45% at that same valuation), while Grupo Televisa would now hold a 45% stake for US$1.5 billion. That is, about US$717 million of additional value (~MXN 14.7 billion or 11% of additional equity value relative to the SOTP valuation). Moreover, these funds would be used to strengthen capital structure (reducing leverage to below 2.0x ND/EBITDA), which would open the door to growth opportunities in the telecommunications business, that also has a positive mid-term outlook, given growing connectivity needs (and which are paid at higher valuations of ~7.0x FV/EBITDA).
Synergies and what is to come are the most relevant factors. Of course, in addition to the above, there is the possible increase in the value of its participation in Televisa-Univision. From the combination, synergies in revenues of US$200 million (6% of the new company's pro-forma LTM sales) and in costs of US$300 million (19% of combined LTM EBITDA) are estimated, as well as a decrease in ND/EBITDA to 5.7x (4.7x assuming synergies) from 7.1x, which would give the new company the financial capacity to invest in the anticipated launch of its global Spanish-language streaming platform (1H22), whose market reaches 600 million people and where only 10% of that population currently uses a streaming product, according to the company.