Breakingviews - Berlusconis test investor faith in pan-European TV
MFE, the 1.8-billion-euro TV group controlled by the family of former Italian Prime Minister Silvio Berlusconi, back in March made an initial lowball bid for the roughly 70% of ProSieben that it doesn't already own. The cash-and-shares offer was worth about 5.7 euros. Czech media investor PPF, which has a 15% stake in the German target, subsequently launched an all-cash counterbid of 7 euros per share, partly to resist the Berlusconis.
The Italians' counter came on Monday, with an increase to the stock-based component of the offer. After accounting for a 6% selloff in the bidder's relevant share class, the new price is 7.93 euros per ProSieben share, with almost three-fifths in the form of cash and just over two-fifths equity, based on Breakingviews calculations. The German group's shares shot up to within a whisker of the offer.
The bidder's chief executive, Pier Silvio Berlusconi, maintains that he's not seeking total control of ProSieben. Rather, he's seeking 'the flexibility to provide clear direction based on a shared vision'. That hasn't stopped MFE from modelling the savings on offer from a full combination, which it pegs at 419 million euros of additional operating profit by 2029. Just under half of this would come from revenue initiatives, such as positioning the enlarged group as a partner for big cross-border advertisers. The rest comes from slashing up to 3% of combined costs, for example by unifying advertising sales and technology operations.
The returns could be nice, if that vision plays out. Add MFE's 419-million-euro estimate of the benefits to ProSieben's forecast 331 million euros of operating profit by 2029, using analyst forecasts gathered by Visible Alpha. After deducting tax at 30%, the total bottom-line boost to the bidder would be 525 million euros, or 16% of the purchase price after factoring in the target's net debt – a nice return by any standard.
If investors believed those numbers, however, MFE's shares would be up rather than down. The consensus among bankers, analysts and investors has traditionally been that cross-border benefits are hard to come by in European television. Whether Spanish audiences will take a sudden interest in, say, German reality-TV programmes seems doubtful. With its beefed-up partly share-based bid, MFE is essentially putting that proposition before ProSieben shareholders. It's a bold bet on a potentially sketchy idea.
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