Latinnews Archive
Mexico & Nafta - 19 August 1993
Of the media package; Has Elektra overpaid?
The auction of the government's 'media package' captured the country's attention. Even Televisa, the private television near-monopoly, which generally ignores news about its competitors, covered the privatisation of the government's media interests in some detail. The jewels in the package were two nationwide television networks.
The winner of the auction held in mid-July was a surprise. The Secretaria de Hacienda announced that the package had been sold to Radio Televisora del Centro, a group headed by Ricardo Salinas Pliego (not a relation of President Carlos Salinas de Gortari). He is a businessman with no political connections. Salinas Pliego has no previous experience of running a media company.
These two factors made him and his group the least favoured by the pundits who attempted to predict the outcome of the auction before its result was announced. (We thought that this group would win (RM-93-07), but largely because it was built around the Aguirre family who used to own one of the channels the government was selling; in the event, Salinas Pliego fell out with Francisco Aguirre who left the group in a huff just before the auction.)
Salinas Pliego claims to have 50 partners but has revealed the names of only four -- and of them one is his father, another his grandfather and the other two are related to him by marriage. The group has offered to pay 2.05bn new pesos (about US$ 660m) for the government's media assets which include: 169 television stations, 420 cinemas and one film studio. An additional property, the government newspaper El Nacional, was withdrawn from the sale as none of the offers for it was deemed sufficient. The highest bid was 465,000 new pesos (about US$ 149,000). The government said that this was less than the value of its Mexico city rotary press.
Ricardo Salinas Pliego, 37, was born into wealth. He is the grandson of Hugo Salinas Rocha, one of the founders of Salinas y Rohca, a large Monterrey-based department store chain. His father, Hugo Salinas Price, created Grupo Elektra, which started as a retailer of white goods and later went into manufacturing. Salinas Pliego took over as chairman of Grupo Elektra in 1987. He turned it into one of the fastest growing retailers in the country, even though the economy was slowing down, by offering credit to low-income customers. The gamble paid off and the company's bad debt experience is surprisingly good.
Grupo Elektra, a privately held company, does not release much financial information. It says that at the end of June this year, it controlled 275 small, high-volume stores throughout the country. Before it bought the TV stations it had announced plans to increase its number of stores to 327 by the end of 1993.
Apart from its retail business, Elektra produces a wide variety of products -- stoves, audio systems videocassette recorders and computers. One of the companies also controlled by Salinas Pliego is Radiocel, a firm that offers radio services to companies that want to avoid the high costs of cellular phones.
Daunting arithmetic
Winning the auction is one thing, but making it profitable will be quite a different game. Francisco Aguirre, the former partner of Salinas Pliego and Radio Televisora del Centro, who later joined the Grupo Cosmovision (which came second in the auction with a bid of 1.5bn new pesos, or US$ 490m -- 30% less than Salinas Pliego's offer), told us that Cosmovision had made an offer as large as was warranted by the assets of the package. Radio Televisora del Centro, in fact, bid 40% more than the minimum price set by the government.
Salinas believes he bought his new properties 'cheap.' He argues that he is looking at the potential profits of the two television networks once they become competitive and at the real estate value of the cinemas. He claims that his competitors looked simply at the current operations' cash flow. Making the TV networks competitive could well cost at least US$ 200m.
Salinas argues that he has not overpaid. He said he was buying two national TV channels which gave him greater coverage than Televisa, the main privately-owned channel, but he was paying only 12% of Televisa's market price for them. He also said that the underbidders had offered much the same for the TV stations, but not as much for the cinemas. Salinas offered 90% more than his rivals for the cinemas (he bid US$ 140m) but only 16% more for the TV stations (he bid US$ 483m). He said that his price for the cinemas reflected their real-estate value.
Salinas reckons that he should recoup his investment in five or six years. This should not be impossible since the TV channels have dismal ratings (often less than 10% of the national audience). He is aiming for a 24% rating by the end of the millennium.
Achieving this is more easily said than done: analysts reckon that Salinas will have to spend US$ 200m on modernising the TV stations, cinemas and film studio. Since he has put everything into buying the properties he is now scouring the world for partners.
Televisa is also a ruthless and well-connected competitor. Its owner Emilio Azcarraga attended the infamous fund-raising dinner party for President Salinas earlier this year and was apparently ready to sign a cheque for US$ 70m to support the PRI's campaign. Televisa also recently threatened to 'black' advertisers who used other channels. The government intervened, because it owned the channels. Now Radio Televisora del Centro does, and it does not have that sort of leverage. True, there is a new anti-monopoly law, but it has never been tested.
Hunt
Salinas and his partners readily admit that they are now out of cash, but they claim that they can raise fresh money by getting new minority partners and by selling shares on the stockmarket.
Salinas obviously has cash. He came up not only with the minimum 33% payment he was committed to by 30 July, but also with a substantial portion of the second payment which was not due until the end of September. This should bring down his interest-rate costs. The last payment, the one that will finalise the operation, is due by November.
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