Euro titans cooking up Dutch treat

Spain's Telefonica bidding for all-stock buyout of Endemol

AMSTERDAM — Europe’s cashed-up media players are caught up in a consolidation craze of their own.

A week after powerful cable operator UPC gobbled up pan-Euro station group SBS, Spain’s Telefonica has leapt borders to make a bid for Holland’s hot TV shop Endemol.

The transaction values the Dutch-based TV production and distribution company at a whopping 5.5 billion Euros ($5.3 billion).

Under terms of the deal, Telefonica will make an all-stock tender offer for 100% of Endemol, a publicly traded company in which co-founders John De Mol and Joop Van den Ende hold a 52% stake.

Improved status

If consummated, deal would catapult Telefonica into the ranks of top Euro media players — the clutch of companies that Hollywood heavyweights can’t afford to ignore.

In a classic share swap, Telefonica is offering a 27% premium on each Endemol share. It will finance the acquisition by issuing new Telefonica shares for Endemol stockholders.

With De Mol and Van den Ende supporting the buyout, the purchase is practically a done deal. De Mol declined to speculate on what shares he or Endemol would hold in Telefonica after his company’s absorption into it.

Giant Spanish telco Telefonica owns broadcasters in Spain (Antena 3) and Latin America (Argentine’s Telefe and Azul); Spanish satcaster Via Digital; and Spain’s top pic producer, Lolafilms. It is one of the world’s largest Internet providers, through Web subsid Terra Networks, and the world’s fifth or sixth largest mobile phone operator.

Major player

For its part, Endemol is one of Europe’s largest and most daring content providers, with annual revenues of $500 million; more than 400 formats in its catalog, most of them less than 10 years old; and a burgeoning catalog of U.S. drama series.

Endemol’s growing Web-based entertainment business — less than six months old and linked to some of its hottest TV formats — has electrified the industry in Holland and Germany.

Its hot reality/gameshow format “Big Brother” has been licensed across Europe and to CBS in the U.S.

At their joint press conference in Amsterdam on Friday, both Telefonica’s Juan Villalonga and Endemol chairman De Mol emphasized that the acquisition reps far more than just a TV deal.

Telefonica is interested in Endemol as a broadband, not broadcast, provider, said Villalonga. Endemol had chosen Telefonica rather than Deutsche Telekom or France Telecom as its partner because it has more multiplatform outlets than the other telcos, De Mol added.

The Endemol deal will consolidate Telefonica’s leverage as it seeks to buy into broadcasters in all key territories in Latin America — and penetrate the U.S. Hispanic market.

Endemol’s integration into Telefonica will be handled by the sharp but silk-gloved Jose Antonio Rios, president of Telefonica’s film and TV division, Telefonica Media.

‘Dream fit’

“In all possible ways, this is a dream fit, especially for future e-commerce activities,” noted Henk Slotboom, a media analyst with Swiss investment bank Julius Baer.

“They are achieving what Time Warner and AOL said they wanted to achieve in the purest and most undiluted way. There is almost no overlap,” he added.

The Telefonica-Endemol deal does, however, raise some questions.

Rumors of an impending takeover of Endemol have been rampant for more than a year but increased in intensity in recent months, due in part to the ill health of Van den Ende.

Considered the godfather of modern commercial Dutch television, Van den Ende resigned his position as vice chairman of the executive board of Endemol on Thursday and will back away from day-to-day responsibilities at the company.

De Mol also said he would step down to take up a new post as chief creative officer of the new Endemol entity within Telefonica.

Diminished creativity

But without Van den Ende, the creative energy that fueled the company’s rise to its present position will be somewhat diminished.

At the close of trading Friday, Telefonica stock stood 2.8% below its pre-announcement price, while Endemol was up 14.9%. Analysts’ take is that Telefonica may have paid a little steeply for Endemol, at more than five times Endemol’s price just four months ago. Telco’s agreed bid price, said Telefonica president Juan Villalonga, reflects Endemol’s value tomorrow, not today, especially as it drives into the Internet business.

The Endemol accord transforms Telefonica from a titan in Spanish-speaking territories into a burgeoning but challenged European major. Deal leaves Telefonica-Endemol without northern European distribution platforms, although Villalonga hinted broadly that there would be further purchases, possibly in the Netherlands.

In film, however, Telefonica’s tentacles now stretch into hot pic land Germany. Endemol holds 25% of aggressive German film financier and distributor Helkon; Telefonica’s Lolafilms is in not-necessarily-incompatible talks with German mini-major Kinowelt Medien to forge a pic production and distribution network across Europe.

Takeover rumors

With Endemol aboard, a newly valued Telefonica is again subject to takeover rumors. According to financial buzz over the weekend, British Telecom may make a further play for the Spanish telco, taking advantage of increased liberalization in Spain’s telecommunication sector promised by Spanish Prime Minister Jose Maria Aznar after his March 12 general election victory.

And the Endemol accord may mark the beginning of the end of Telefonica’s alliance with the U.K.’s Pearson Group, a direct rival of Endemol in the TV production and distribution business. Telefonica has held a 5% stake in Pearson since June 1999.

And then there’s the possibility of conflict between the Spanish and Dutch ways of doing business. Pearson and U.S. investment firm Hicks, Muse, with which Telefonica has some big-buck financial dealings, have lamented culture clashes when dealing with Telefonica.

(Adam Dawtrey and Emiliano de Pablos contributed to this report.)

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