• by Wayne Friedman , David Goetzl  @dgoetzl, March 30, 2006

Short-circuiting reports of an imminent purchase of Univision, CBS' top financial executive virtually pulled the plug on the likelihood of a deal to acquire the largest U.S. Spanish-language broadcaster.

"Univision is a great company, but there are two major issues for us. One is valuation, and the other is regulation," Fred Reynolds, chief financial officer of CBS, said Wednesday during a Bank of America investor conference in New York.

Describing Univision as "a terrific company," Reynolds nonetheless said that financial and regulatory hurdles would deter CBS from mounting an aggressive bid to purchase the business.

The CBS-Univision buzz was sparked by a New York Post report Tuesday that said CBS was evaluating a bid for Univision with another partner. All this helped drive Univision's stock up on Tuesday.

Media analysts caution that many media companies have done their due diligence regarding Univision's financial books in recent weeks, and that even the likely buyers, Time Warner and Walt Disney, seem to be backing away for the same reasons that Reynolds noted: Tough TV station regulatory issues and a rich price tag.

CBS has always been considered a long shot because it is near the FCC maximum on TV stations' ownership--that is, stations representing 39 percent of U.S. TV households. Time Warner is the better bet, considering it doesn't own any TV stations. Disney's ABC station group is smaller than CBS'--at around 24 percent.

But analysts warn that while Univision is the dominant Spanish-language broadcaster in the United States, CBS has already had its fill of overvalued stations. For the last several years, analysts noted, CBS had to take up to $20 billion in write-downs from radio and TV station purchases. Analysts say CBS would be loath to go through that again.

This is only part of the problem. Univision's stock is just under $35 a share. That means the company is currently trading a high 16 times EBITDA (earnings before interest, taxes, depreciation, and amortization). By comparison, CBS is trading more like a traditional broadcast company--at around 8 or 9 times EBITDA.

Univision's investment banker, UBS, has been floating a $40-a-share price tag--which would put the company at an eye-opening 19 times EBITDA. All that might spell doom for a possible sale.

Philip Remek, senior equity analyst for Miami-Fla.-based investment banker Guzman & Company, says there's a strong possibility it could go unsold specifically because it has become clear that the long-time promise of upside advertising revenues and new clients may stay as that--just a promise.

Univision has about 170 continuing national advertisers. But for over a decade, analysts have salivated that it could grow its client base to be on the same level as English-language networks such as CBS, which have 300 or more advertisers.

"People like to talk about the advertisers they don't have," said Remek. "But right now there is no reason for an upscale advertiser to buy Univision. They are not going to get a Lexus. It took them years to break into pharmaceuticals."

Many of Univision's bread-and-butter advertisers still promote mid-price range consumer products, targeting the network's mostly young and working class families, said Remek.

Univision's buying price could change--which would bring potential buyers to the forefront. "Time Warner would be the most logical one on paper because of its lack of TV stations," said Remek. "Time Warner could drive Univision's growth."

Univision's shares shot up to a new six-week high of $34.76 in a buying frenzy on Tuesday, with trading volume nearly tripling to 6.4 million shares. But on Wednesday, the stock slipped back to $34.28 a share.

Univision revealed three weeks ago that it was looking for a potential buyer. First-round bids are due in about two weeks, according to reports.

In other comments, Reynolds expressed optimism that the CBS network would show growth in the coming upfront. Competitors ABC and Fox will also perform strongly, while NBC will struggle, he said. But as ABC--which two seasons ago was faltering badly--has shown, a turnaround for NBC may be just around the corner, he said. "I'm sure they'll be coming back just like ABC came back," Reynolds said.

In addition to prime time, Reynolds told investors CBS has "enormous" growth opportunity in news. The network has been rumored to be pursuing NBC's Katie Couric for its evening newscast.

As for CBS Radio, Reynolds said the loss of Howard Stern to satellite radio has hurt. He said the 27 stations that carried Stern until December have been struggling since. "'06 will be a very tough year for them," he said. But he said the CBS portfolio includes 152 other stations.