Discovery-TF1 partnership could be weeks away

MADRID

Discovery Communications is negotiating to take a 20% stake in French media group TF1’s pan-European sports channel, Eurosport.

The €170 million ($222 million) cash deal is part of a proposed strategic alliance between Discovery and TF1, announced out of the blue on Nov. 14, and should close in the next few weeks, the would-be partners indicated on Thursday.

Discovery will also have an option to raise its stake in Eurosport, one of TF1’s most profitable companies, to 51% in two years.

If Discovery goes that route, TF1 could exercise a put option to sell its remaining 49% — though analysts doubt the French TV giant will want to lose all upside on the cash cow.

A joint Discovery-TF1 press release Thursday signaled “geographical expansion” as one motive for Discovery’s proposed joint ownership of the channel.

Generating an operating profit of $84.8 million off $479.9 million revenues in 2011, Eurosport reaches 130 million homes in Europe and five million in Asia, but has no reach in North or Latin America.

The strategic alliance would also see Discovery taking a 20% stake in four TF1 payboxes — TV Breizh, Histoire, Ushuaia TV and Stylia — with an option to increase its shareholding to 49% in two years.

Discovery and TF1 Prods. would also partner to produce magazine and documentary programming.

“These announcements represent very good news (for TF1) as Eurosport is very generously valued at $1.1 billion, in other words, 13 times the 2011 operating profit,” said Jean-Baptiste Sergeant, at Gilbert Dupont, a Paris stockbroker.

He added, “The link-up with Discovery provides Eurosport with an opportunity to expand its geographical coverage, notably on the American continent, where it is not currently distributed, and to diversify its activities, notably in the digital field.”

TF1 shares rose 0.4% to $11.7 in trading by late afternoon Thursday in Paris.

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