Viacom in Advanced Talks to Buy Argentine TV Network Telefe From Telefonica

Telefonica seeks to deleverage, Telefe to drive into international contents

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Viacom Inc. is in advanced talks to acquire Argentina’s biggest TV network, Telefe, from giant European telecom Telefonica.

The operation is said to be worth about $385 million.

Though still requiring the parties to sign off on the deal, the operation could be announced as early as next week, according to Argentine newspaper Clarín. Viacom is said to have outbid Time Warner and the Cisneros Group to buy Telefe.

Telefonica’s sale marks part of a divestment drive at the telco whose debt levels run at 3.2 times operating profit, third quarter 2016, after the European Commission blocked a sale of Telefonica’s U.K. telco O2 to Hutchinson and Telefonica cancelled an initial public offering of its infrastructure unit, Telxius. The returns Telefonica will see from Telefe, though it moves the telco in the right direction, will hardly move the needle on Telefonica debt which stood at €50.0 million ($55.4 billion) on Sept. 30. Debt at European telecoms is expected to average 2.24 times operating profit by the end of 2017, said one analyst.

For Viacom, the Telefe deal would be a bet not just on Telefe but a turnaround in the Argentine economy under new president Mauricio Macri. The amount of foreign direct investment in Argentina in the first nine months of 2016 passed  $4.1 billion, more than that for the whole of the years in 2014 and 2015, according to fDi markets, a Financial Times data service.

Telefe already dominates TV ratings in Argentina. Under Tomas Yankelevich, Telefe’s contents and international business chief, Telefe has also driven into international content alliances, seeking to loosen its dependence on the Argentine economy, signing co-development alliances with FremantleMedia and Keshet, for example. It has also entered Latin American TV series co-productions, such as on crime drama “The Return of Lucas.”

Telefe opened an office this January in the U.S. to pioneer English-language productions which it described as a “fundamental step” in growing to be “among the main production companies in the world.” It is also pushing into shorter novelas, often with a thriller edge, such as “Love After Love,” whose billboard emblazoned Cannes Palais des Festivals at last month’s Mipcom trade fair.

As competition for premium content heats up in Latin America’s pay TV market, including in Argentina, fired up by broadcasters’ response to the launch of Netflix across the region, Telefe’s content production ambitions are among the most aggressive in the region.

“Going down the free to air TV route as a window at a time when chord-cutting is taking place and there are less subscribers for the traditional cable TV channel resale is something that could be interesting at a time when the Viacom is redefining its priorities,” said one analyst.

Viacom’s purchase of Telefe was first reported by Bloomberg.