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Wall St. and Business Wednesdays: Liberman's IPO Not The Big Enchilada

Here's a new twist to old media: Ethnic broadcasting.

Liberman Broadcasting's planned initial public offering is a bet on the growing size and economic clout of the Hispanic market. But it's a small company coming late in the cycle and it won't add much to investors' portfolios.

The broadcasting company plans to use net proceeds raised in the deal to repay debt, generally a good way to mute early response to an IPO because investors want to see their money used to grab market share. Company insiders are also cashing out, another downbeat note for IPO investors. This deal won't pop on the opening.

The Spanish-language broadcast sector has major players that dwarf Liberman Broadcasting, including Univision (nyse: UVN - news - people ), Spanish Broadcasting System (nasdaq: SBSA - news - people ), Entravision Communications (nyse: EVC - news - people ) and Telemundo. In September 2003, Hispanic Broadcasting merged with Univision.

Liberman Broadcasting is the fourth largest owner and operator of Spanish language radio and TV stations based on revenue and number of stations. It owns 16 radio stations, including ten FM and six AM, and four TV stations in Los Angeles, Houston, Dallas-Fort Worth and San Diego. The company, founded in 1987, acquires underperforming stations, including those broadcasting in English, and converts them to a Spanish-language format.

The U.S. Census Bureau reports that Hispanics are the nation's largest minority group and growing about seven times faster than the non-Hispanic population. The U.S. Hispanic population is expected to reach about 43.7 million people or about 15% of the U.S. population by 2010.

Liberman Broadcasting says advertising in Spanish-language radio and TV has grown at twice the industry rate as a whole between 1997 and 2003. Of course, that's measured from a narrow base. English-language broadcasts command higher ad rates, but the company expects the gap to narrow as the Hispanic population grows.

On Sept. 30, Liberman Broadcasting's debt totaled about $356.6 million. The company is recently profitable, reporting net income of $2.1 million for the nine months ended Sept. 30 on revenue of $68.4 million. The company reported net losses in 2002 and 2001.

Liberman Broadcasting of Burbank, Calif. plans to offer 11.050 million shares, including 1.050 million by current shareholders at $15 each through underwriters led by Credit Suisse First Boston. The proposed Nasdaq symbol is LBIM. No date has been set for the IPO.

The ethnic broadcasting sector has launched successful IPOs, including Radio One (nasdaq: ROIAK - news - people ). The Lanham, Md.-based company is the largest broadcaster serving African-American audiences in the nation. It owns and operates about 70 radio stations, including 37 in the top 14 African-American markets. Radio One has invested in a cable TV company, New Urban Entertainment Television and operates TV One, a joint venture with Comcast (nasdaq: CMCSA - news - people ). Radio One also provides content to XM Satellite Radio Holdings (nasdaq: XMSR - news - people ).

Radio One offered 6.5 million initial shares in May 1999 at $24 each. The stocked gained about 44% on the first day of trading and recently fetched $15.91.

UniVision launched its IPO in September 1996 at $23 per share. The stock gained about 37% in first day trading and recently fetched $28.30.

Spanish Broadcasting System went public in October 1999 at $20 per share. The stock gained about 39% on its first day and recently traded at $10.23.

Entravision Communications gained about 14% from its offer price of $16.50 in August 2000. The stock recently fetched $8.19.

Liberman Broadcasting may be a bet against assimilation. Will the children of recent Spanish-speaking immigrants continue to listen to Spanish-language broadcasts in large numbers as they learn English and move into the American mainstream? The short answer is: Who knows. But for the most part, the foreign language newspapers that served waves of European immigrants in the early 20th Century are gone. However, Hispanics are a much larger demographic group and its size may allow members to retain their language and ethnic identity in a way that, say, Scandinavian immigrants couldn't.

Radio may be undergoing a fundamental shift as evidenced by the success of Sirius Satellite Radio (nasdaq: SIRI - news - people ) and XM. Sirius began 2004 with about 260,000 subscribers and closed the year with about 1.1 million. It expects to double its subscriber base this year. The company recently signed Howard Stern to a $500 million, five-year contract. There's no reason satellite radio couldn't pick off the top Spanish language radio personalities, eroding the broadcast audience. Industry leader XM Satellite has more than 3.1 million subscribers and has signed deals with Toyota Motor (nyse: TM - news - people ), General Motors: nyse: GM) and Major League Baseball.

Expect investors to value Liberman Broadcasting's stock accurately in early trading. It's unlikely that investors waving money will clamor to buy the fourth-largest company in the Spanish-language broadcast sector. When it comes to this IPO, manana will do.

This article was published in Forbes Magazine

Scott Reeves

Wednesday, January 12, 2005

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