MIAMI — When it comes to Puerto Rico, there are perhaps no better known radio properties than WKAQ-AM 580, the Spanish-language News/Talk station, and “KQ105,” the Spanish Contemporary cadena (or “network”) that’s used a variation of the “Hot Hits” format created by programming consultant Mike Joseph for at least four decades.
Since 2003, the AM/FM combo have been owned by Univision Communications, and today are “Uforia” stations under TelevisaUnivision Inc. Soon, they won’t be.
A big media company in Puerto Rico is getting the stations, along with some cash, in exchange of a streaming platform that could further bolster its recently launched ViX product across the U.S. and Latin America.
But that’s only part of the story: That media company getting WKAQ-AM and “KQ105” is going private, and TelevisaUnivision’s lead investor is behind the purchase.
Hemisphere Media Group, which is publicly traded as “HMTV” on Nasdaq, has entered into a definitive agreement to be acquired for $7.00 per share in cash by a subsidiary of Gato Investments LP.
Gato is a portfolio investment of Searchlight Capital Partners L.P.
If that name is familiar, it is because Searchlight III UTD and ForgeLight in December 2020 completed their acquisition of a majority stake of Univision Holdings.
Furthermore, Searchlight Capital Partners is a private investment firm founded by TelevisaUnivision CEO Wade Davis that has been an investor in Hemisphere prior to the Univision deal. Thus, the buyout of Hemisphere shouldn’t come as a surprise to longtime market observers.
While Davis is a co-founder of Searchlight, it is today led by Eric Zinterhofer. In April 2021, it welcomed a 10th partner who also become a prospective board member of “a number of Searchlight’s existing investments in the technology, media, and telecommunications sectors” — former FCC Chairman Ajit Pai.
With news of the $7 per-share buyout offer reaching investors, Hemisphere shares exploded in value, rising $2.99 to $6.76 in morning trading on Monday (5/9).
The offer price per share of common stock represents a premium of approximately 86% over Hemisphere’s closing share price on May 6, the last trading day prior to announcement, and a premium of approximately 63% over the 30-day volume weighted average share price for the period ended May 6.
A BOOST FOR ViX
Hemisphere has an asset portfolio that includes cable networks Cine Latino, telenovela-focused Pasiones, Central American consumer-focused CATV, and Televisión Dominicana; the long-successful WAPA-4 in Puerto Rico and its associated branded content, including stateside offering WAPA América; Spanish-language content distribution company Snap Media; and an ownership interest in RTVC Canal 1 in Colombia.
Until now, Hemisphere Media Group has also been the owner of the Pantaya streaming platform, focused on feature films and series en español.
That’s changing, as the privatization effort is being done concurrent to a separate agreement that sees TelevisaUnivision acquire Pantaya, perhaps seen as a competitor of sorts to TelevisaUnivision’s ViX Spanish-language visual entertainment platform. In April, TelevisaUnivision launched global AVOD service ViX. Its global SVOD service ViX+ will come to market in the second half of 2022.
“The acquisition of Pantaya’s digital assets, including renowned titles like ‘Señorita 89’ and ‘A La Mala,’ is an exciting opportunity to build upon our strategic growth plan as we continue to redefine the global streaming landscape,” said TelevisaUnivision President and Chief Transformation Officer Pierluigi Gazzolo. “We look forward to welcoming the Pantaya team, the existing subscribers and having access to the content assets which perfectly complement TelevisaUnivision’s library.”
To secure Pantaya, TelevisaUnivision is giving Hemisphere’s HMTV DTC LLC subsidiary an undisclosed amount cash, and its Puerto Rico radio assets.
“Hemisphere contemplates using the net cash proceeds from the TelevisaUnivision transaction to promptly prepay Hemisphere’s outstanding senior secured term loans,” the company said, regarding its net leverage and debt.
Paperwork detailing the transaction, including the amount of dollars Hemisphere is netting from the deal, has yet to be filed with the FCC.
While news of the sale — and its privatization effort — sparked a buying frenzy on Nasdaq for shares of “HMTV,” Hemisphere’s stock has been particularly depressed in value since November 2011 and was trading in the $12 range in summer 2021.
Hemisphere is led by CEO Alan Sokol, a familiar figure across many NATPE Miami events through January 2020, the last event NATPE held at the Fontainebleau Miami Beach. The event, squashed by COVID-19 in 2021, relocated to Los Angeles as of this year.
Sokol said, “We are pleased to have reached this agreement with Gato, which we believe is the right path forward for our organization and delivers immediate value and certainty to stockholders. We have worked tirelessly to create an extraordinary portfolio of assets, and this transaction is a direct reflection of the quality of our networks, growing audience, and premium news and entertainment outlets. As a private company, and with the support of Gato, we will have the ability to make long-term investments in content and innovation that will best serve Hemisphere’s audiences.”
Zinterhofer added, “We have had a longstanding relationship with Hemisphere and this transaction will provide the Company with enhanced financial flexibility to achieve its goals. Hemisphere is a leader in delivering news and entertainment to its growing audiences. We will continue to partner with the management team at Hemisphere to bring our communities the unique and important content they desire.”
Hemisphere in April 2021 acquired the remaining 75% stake in Pantaya that it didn’t already own for $124 million.
Regarding the trade that sends Pantaya to TelevisaUnivision and the Puerto Rico radio assets to Hemisphere, Sokol commented, “Pantaya will flourish under TelevisaUnivision’s ownership. Given the highly competitive video content market environment, the streaming service is best positioned as part of an organization that can provide it with the resources and investment it needs to scale and grow. In addition, Hemisphere’s acquisition of certain TelevisaUnivision Puerto Rican radio stations including WKAQ-AM and KQ105 will be an ideal complement to WAPA, Puerto Rico’s leading broadcast network.”
Sokol also revealed that after the transaction closes, the TelevisaUnivision Uforia programming team will continue to program KQ105. Details as to how that arrangement will transpire were not disclosed.
There’s a possibility the transaction will not close, albeit a small one.
That’s because the privatization offer, formally a merger agreement, includes a 30-day “go shop” period. This means that, until June 7, Hemisphere has the right to actively solicit and consider alternative acquisition proposals. That is likely a formality, however, as Hemisphere says the merger is expected to close in the third quarter of 2022.
Shareholder approval is needed for the privatization effort to take place.
AN ERA ENDS FOR PUERTO RICO RADIO
The transfer in control of WKAQ-AM and the “KQ105” network’s FM properties in Puerto Rico will bring to a close 19 years of ownership of the stations by Univision and a predecessor company.
When the former Hispanic Broadcasting Corp. announced in February 2003 that it was purchasing WKAQ-AM & FM in San Juan and WUKQ-AM & FM in Ponce from a foundation set up by the stations’ founder, Angel Ramos, it was hardly greeted with cheers across Puerto Rico. For some, HBC was seen as an outsider group, and control of two of the commonwealth’s biggest properties were being taken by “mainlanders.”
Heavy opposition arose from several Puerto Rican politicians and recording artists as one . Bernardo Vazquez Santos filed a petition to deny the transaction. The FCC rejected the petition without comment, and in June 2003 approved HBC’s $32 million acquisition of the four radio properties.
Meanwhile, the FCC at the time was reviewing the sale of Hispanic Broadcasting Corp. to Univision Communications. Valued at $3.1 billion, the transaction was first announced in June 2002 but did not win Commission approval until September 2003.
WKAQ-AM 580 and WUKQ-AM 1420 air a Spanish-language News/Talk format that has long been a market leader. WKAQ-FM 104.7 and WUKQ-FM 98.7 are “KQ105,” a uniquely Puerto Rican Spanish Contemporary station that has long blended international pop hits with salsa, reggaetón and bachata songs populating the Latin music charts.
Advisors
Moelis & Company LLC and PJT Partners LP are serving as financial advisors and Davis Polk & Wardwell LLP is serving as legal advisor to Hemisphere’s Special Committee. Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal advisor to Hemisphere.
Searchlight is being advised on the transaction by Latham & Watkins LLP and Gato is being advised by Covington & Burling LLP.
TelevisaUnivision is being advised by Hogan Lovells US LLP.
Financing is being provided by Wells Fargo, Truist Bank, Truist Securities, Inc., Fifth Third Bank, N.A., Deutsche Bank AG New York Branch and Deutsche Bank Securities Inc.
Don’t Be Unlucky: Registration Fees To Rise for Hispanic Radio Conference
