Deal creates a monopoly in the French pay TV market

PARIS — Creation of European pay TV giant Canal Plus France became official Friday, with Canal Plus’ takeover of rival operator TPS.

Deal, which marks another turning point in Canal Plus’ turbulent history, ends a decade of costly rivalry between the two companies and creates a single powerhouse with more than 8 million subscribers, rivaling Britain’s BSkyB.

Vivendi controls the new entity via Canal Plus Group, which owns a 65% stake, while the other shareholders are Lagardere (20%), and TPS’ former owners TF1, with 9.9% and M6 with 5.1%.

Included in the entity are all of Canal Plus Group’s pay TV activities in France. Not part of the deal are Studio Canal, which continues to be owned 100% by Canal Plus Group, Polish pay TV unit Cyfra Plus and the round-the-clock news service i Tele.

Vivendi announced the finalization in a brief communique Friday, practically a year after the merger plan was unveiled.

“The new entity represents a pay TV player comparable in size to the largest groups in Europe, one that can effectively operate on the new competitive playing field and energize the television market,” the statement read.

Canal Plus Group is expected to post 2006 revenues of E3.1 billion ($4.06 billion), most of which comes from French pay TV activities. TPS revenues are not published but in its results for the first three quarters of 2006, TF1 Group said the unit posted a profit for the period of $55 million. It had been a loss-maker until very recently.

Although the deal gives Canal Plus a pay TV monopoly in France the merger process went ahead relatively hitch-free. The French authorities gave it the greenlight in August.

Canal Plus successfully argued that the emergence of new competition from Internet service providers and telcos like France Telecom had changed market conditions in France.

They will also be seeking to slash the cost of movie and sports rights, now that there is no longer a rival to force up the price. Output deals with Hollywood and the French football league were particularly onerous in recent years, with Canal Plus Group paying an astronomical $700 million for rights to French first division soccer.

At a low-key press lunch, Jean-Bernard Levy, Vivendi chairman, underscored the group’s renewed interest in its media activities, which include Universal Music Group and Vivendi Games. He said Vivendi’s future would be predominantly in the media rather than telecom.

“We already have strong leadership in a number of areas,” he said, citing the video game “World of Warcraft.”

He called the Canal Plus merger deal “the crowning of a policy of major investment.”

Levy set out two objectives for the Canal Plus Group: to increase the number of subscribers to 10 million by 2011, and to increase its operating profit margin from 5% to 20%, which would produce a profit of Euros 1 billion ($1.3 billion).

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