A Chicago merchant banking firm that owns nearly 10% of Spanish Broadcasting System’s class A common stock wants SBS chairman/CEO/president Raul Alarcon, Jr. to take the company private, sell to a strategic party or get out of the way by adopting “modern corporate governance practices.”

In a strongly worded seven-page letter filed with the SEC, Discovery Group managing partner Daniel Donoghue told the broadcaster’s board of directors, “It is imperative that the board form a special committee comprised of truly independent directors and empower the committee to hire a nationally recognized investment banking firm for the purpose of evaluating the [above-mentioned] alternatives.” Donoghue said he was “writing to express our grave concerns regarding the severe and steady erosion in shareholder value that has occurred since the company went public eight years ago.” Donoghue noted that “senior officials of Discovery” have met with management of SBS “numerous times over the past few years to discuss these concerns” and that it recently presented “several tangible, value-restoring opportunities” that it uncovered, including a suitor “for a highly strategic industry merger,” but that management was “unresponsive” to both the concerns over value and the possible merger.

Donoghue said that Discovery has watched SBS shares drop from “$20 to less than $2 -- $1 billion in lost company value,” and that “the only person who benefited” from owning a piece of the company was Alarcon, whose father began the business about 25 years ago.

Donoghue suggested to the SBS board that it add to this year’s proxy a proposal “asking if class A shareholders support the hiring of an investment banker to explore strategic alternatives.” If it takes no action, warned Donoghue, “Discovery will formally place such a referendum on next year’s proxy.” He also said, 'We request a response to our concerns and expect that a member of the board of directors will address these matters on your upcoming conference call with investors.”

That will happen on Wednesday (March 12) at 2 p.m. ET, when SBS conducts its quarterly teleconference for investors and analysts to discuss its fourth-quarter and full-year 2007 financial results. To listen, dial (973) 935-2407 and use passcode 30939861. For a live webcast, click here.