Mexican pay-TV and broadcasting behemoth, Grupo Televisa S.A.B. TV is likely to gain significantly from its ownership stake in the U.S. broadcaster, Univision Holdings Inc. Privately held Univision is the largest Spanish broadcaster in the U.S.

Also, Univision has the fifth-largest TV network in the U.S., with a portfolio consisting of two leading Spanish broadcast networks, several cable channels, TV stations and a chain of popular Spanish-language radio stations. Further, the company generated $2.9 billion in revenues in 2014 through advertising and subscriptions.

Recently, Univision announced that it has filed a registration statement with the U.S. Securities and Exchange Commission (SEC) for a proposed initial public offering (IPO), with the offering price set at $100 million. However, industry sources opine that Univision’s IPO is set to rise well above $1 billion. Also, the amount of shares to be sold and price range for the stock offering are yet to be determined.

Notably, in 2007, Univision was acquired by a consortium led by billionaire Haim Saban for a total consideration of $13.7 billion. Other investors included Madison Dearborn Partners, Providence Equity Partners, TPG and THL Partners.

In early 2012, Televisa effectively purchased a 35% stake in Univision worth $1.2 billion. As per the agreement, Televisa paid $130 million in cash for a 5% stake and purchased convertible debt for the remaining 30% stake. Televisa also holds the right to buy an additional 5% stake over the next five years, which will increase its potential ownership in Univision up to 40%. Currently, Televisa effectively holds a 36% stake in Univision.

Last year, Univision’s owners held discussions with CBS Corp. CBS, Time Warner Inc. TWX and Viacom Inc. VIAB for the sale of the company. However, the initiatives failed to take shape.

Most recently, Televisa and Univision also extended their Program Licensing Agreement from its current expiration of 2025 to at least 2030. The companies have signed a Memorandum of Understanding that will witness an increase in Televisa’s voting stake in Univision to 22% from just under 10% as of now.

We note that currently, a considerable share of Televisa’s income is generated from its U.S. operations, which includes the sale of content, website and cable TV. Televisa allows Univision to access its content and then rebroadcast it on TV and the Internet for a royalty. In 2014, Televisa’s royalty from Univision peaked a record-high of $314 million, up nearly 15% year over year.

Moreover, the U.S. Hispanic TV market is highly lucrative and is growing at a remarkable pace. As per the filing, the U.S. Spanish-speaking audience totaled 57 million in 2014, and is projected to grow to 77 million by 2030. Consequently, Televisa is positioned to gain significantly from the sale of Univision.

Televisa currently has a Zacks Rank #3 (Hold).

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