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Luxor Capital Buys Hemisphere Media Stake From Hawkeye Capital

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Luxor Capital, a multi-billion dollar hedge fund owned by Christian Leone, recently bought the majority of Hawkeye Capital’s stake in Hemisphere Media Group Inc (NASDAQ:HMTV). Luxor Capital owned roughly 3.24M shares of HMTV as of 6/30/2011; as of today they own 4.55M shares. Hawkeye, which is a very eclectic hedge fund run by Richard Rubin, essentially has sold their entire stake in Hemisphere Media Group Inc (NASDAQ:HMTV), having once held 2.08M shares.  Hawkeye has been very cautious on the stock market since early 2007, holding roughly 60% cash going into the 2008 crash. It has remained cautious and skeptical of the Fed-driven market.  It is notorious for holding SPACs, but selling once the blank check company actually does a deal.

Luxor Capital

Luxor looking to acquire more Spanish-speaking channels

Hemisphere Media Group is run by guys from Intermedia Partners, a Private Equity firm that focuses on television, with past experience running Telemundo until they sold it to NBC. So management has a solid track record in the Spanish-speaking cable TV industry, and that bodes well for shareholders of Hemisphere Media Group Inc (NASDAQ:HMTV). Management is believed to be trying to acquire other small Spanish-speaking cable channels, and a deal should happen within the next 6 months.

The goal of management is to double the size of the company and eventually sell it in 3-5 years to a larger player in the space. That’s the rumor on the street, at least. Once the SPAC started trading, it quickly went from $10 to a reported $17.79, although that appears to be a very small market order placed by a retail investor, who took the asking price on a thinly-traded stock with a wide spread.  But nonetheless, the stock traded in the $14 range for some time.

All I can assume is that when the Puerto Rico news hit, they sold the stock off, as they have a decent amount of exposure to Puerto Rico.  While Puerto Rico news has been hot off the presses, once again an overreaction by investors and fear has spread too far.  Have you taken a look at all the other countries supposedly going to zero?  Greece, Dubai, Cyprus, etc. – they are all still around and still using their same currency. Puerto Rico has actually taken steps of austerity to curb the damage, and it is going nowhere. The next question then becomes, are people in Puerto Rico really going to get rid of their cable?  Highly unlikely.

Reasons for Hawkeye’s sale

I chalk the sell-off up to Hawkeye exiting a large position, which I view as neutral, knowing their nature as a firm, very thin float, and overblown news on Puerto Rico.  All of which are non-fundamental reasons why the stock has sold off. It is not overly expensive, with expected EBITDA of roughly $48M next year, on an EV of $433m. Paying 9x forward EV/EBITDA for the only pure play Spanish-speaking cable channels in the US. Comps like DISCA (not exactly, but closest) and others are trading at much higher multiples, and Hemisphere Media Group Inc (NASDAQ:HMTV) has their own content. They are also converting one of their main channels from subscriber-paid to ad-paid, which should boost EBITDA even more in the coming years.  I also firmly believe you have a population tailwind at your back, with the Spanish-speaking population growing faster than other demographics in the USA.

The biggest issue is float, with shares outstanding being 12.1M, 8.6M in float, but you have Luxor owning 4.5M and clearly they are in it for the long haul. To say Luxor is bullish is a huge understatement! The downside seems quite limited, and Intermedia is also NOT going anywhere.

They have a very solid management team and board, with a lot of connections and experience in both media and Spanish-speaking channels. I have not seen Luxor get active in the past on companies they own, but I wouldn’t be surprised to see someone end up on the board. I believe they also have full faith in Hemisphere Media Group Inc (NASDAQ:HMTV) management, and investors are just waiting on the acquisitions to roll in.

Note:  As always we suggest you do your own work before buying any securities mentioned in the article.

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