Spanish nets form TV giant

Telecinco, Prisa combine forces in billion-dollar deal

MADRID — Mediaset’s Spanish broadcast network Telecinco and Spanish conglom Prisa have combined forces to create Spain’s biggest TV group in a deal worth E1.05 billion ($1.5 billion).

In one purchase, Telecinco has bought a 22% stake in Prisa-owned satcaster Digital Plus. Telecinco will pay E517 million ($739.3 million) in cash for the shares, valuing Digital Plus at E2.35 billion ($3.4 billion), exactly in line with the valuation of Digital Plus made last month by Spanish telco giant Telefonica when it took 20% of Digital Plus.

In a parallel operation, Telecinco and Prisa terrestial broadcaster Cuatro will merge in a holding company 78% owned by Telecinco. A share issue by the new holding will leave Cuatro’s final stake in the merged Telecinco-Cuatro holding at 18.3% with a market value of around E550 million ($786.5 million).

Announced Friday night, the Telecinco-Prisa deal takes the form of a term sheet or short-form agreement, approved by the boards of Telecinco and Prisa.

The two companies will take not more than two months to draw up final contracts and seek regulatory clearance, Prisa announced.

While merging their ownership, Telecinco and Cuatro are expected to maintain the independence of their channels.

Telecinco shares rose 7.3% to E9.87 ($14.10) on the back of building rumors that Telecinco and Prisa would seal a deal today.

But Prisa shares dropped 2.1% to E3.8 ($5.40): The market had already factored in the purchase of Digital Plus and Cuatro by Telecinco and Prisa didn’t quite get the deal it wanted.

Analysts had calculated that Prisa could raise up to $1.43 billion in the cash sale of a stake in Digital Plus and also Cuatro.

The Telecinco-Prisa pact reps a giant leap in TV media concentration in Spain — one that could very well push rival broadcasting groups Antena 3 and La Sexta to merge.

It is also a reply to the needs of Telecinco to wring more money out of Spain’s vastly-contracted TV ad market.

“The key to mergers is potential TV ad pricing,” said one analyst.

Charging far lower ad prices, La Sexta and Cuatro have benefitted significantly more than Telecinco and Antena 3 from a Spanish government-imposed progressive ad nix at pubcaster RTVE.

As standalone operations, Antena 3 and Telecinco currently look hard-pressed to raise TV ad prices in 2010.

“If Sexta and Cuatro are no longer independent, it’s far easier for Antena 3 and Telecinco to control price increases,” the analyst said.

A Cuatro-Telecinco merger would also rep cost savings in staff and, to a certain extent, content purchases, said Adrian Zunzunegui, at Iberian Equities.

Telecinco entry into Digital Plus looks like a tit-for-tat for gaining control of Cuatro.

“Prisa needs the cash and is asking for cash for Digital Plus in return for ceding control of Cuatro,” said Fernando Cordero, at BNP Fortis.

The big question for Prisa, which still faces a debt mountain of some E4 billion ($5.7 billion), is if it has now raised enough cash to avoid a right-issue, which would punish its stock value.

Michael Day in Rome contributed to this report.

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