Univision still cleaning house ahead of IPO

Provided exclusively by Mergermarket

Univision Communications needs to focus on bringing its results into line via divests and operational improvements as it waits on the Federal Communications Commission (FCC) to open the pathway to its IPO, a source familiar with the matter and two sector advisors said.

The company’s ambition to float on the public markets took a hit earlier this month after it reported weak third-quarter results and announced plans to lay off up to 250 workers, or about 6% of its staff. According to an S-1 filed by Univision, its eventual offering will be led by Morgan Stanley, Goldman Sachs and Deutsche Bank.

For 3Q16, revenue fell 8.3% from the year-ago quarter, to USD 734.8m. OIBDA fell 17.2%, to USD 317.7m.

Univision is now looking at possible non-core business line divestitures, the source familiar said, including small segments like Univision’s healthcare business.

Another opportunity to divest assets is in the currently-underway incentive auction, run by the FCC, in which broadcasters offer to sell their spectrum licenses in a reverse auction to then be purchased by telecom operators in a forward auction.

The two sector advisors said that an IPO would likely have to wait on the outcome of the auction, which would mean that the offering could possibly go forward late into 1Q17. Univision was among the first group of broadcasters to break from the hard line against the FCC advocated by the National Association of Broadcasters, meeting with the Commission in February 2015 to voice support for the auction.

However, the process now looks set to drag out far longer than anyone initially anticipated. The incentive auction does not end until the aggregate bids offered by telecom operators in the forward auction equals the aggregate bids accepted by broadcasters in the reverse auction. Because the gap between the two has thus far been enormous, the FCC is having to run multiple reverse and forward auctions, with the process seen likely to stretch into the first few months of 2017.

Finally, Univision is waiting on an FCC ruling on its request for a waiver to allow increased foreign ownership past the FCC’s 25% cap. If the waiver is granted, Univision backer Televisa [NYSE:TV] could convert its sizeable holdings of Univision debt to equity, lowering Univision’s leverage and interest payments and smoothing its path to IPO, which could then comfortably receive participation from foreign buyers while not falling afoul of foreign ownership rules.

A second source familiar with the matter said that Univision could technically still IPO without the waiver. The FCC recently loosened some elements of the rules regarding applications for foreign ownership waivers and offered companies awaiting approvals the chance to amend their filings, but the source said that this did not meaningfully change the process or the time required to reach a resolution.

One potential risk on this front is the incoming Trump administration. The FCC’s foreign ownership rules are largely discretionary, with statute requiring only that the Commission prove that allowing increased foreign ownership of a broadcast entity would not be in the public interest. A hard-line Trump FCC could introduce new rules that would strictly limit foreign ownership.

However, as this news service has previously reported, Republican Commissioner Ajit Pai, who has previously called for relaxing rules on foreign ownership, is seen as a favorite to be interim Chairman of the FCC.

Univision did not respond to a request for comment.

by Tom Cane and Jonathan Guilford in New York

As seen in the mergermarket newsletter on 22/11/2016

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