French media giant Vivendi has caught Mediaset, and everyone else for that matter, completely off guard by backtracking on its pay TV alliance with the Italian broadcaster, in a deal that looked to be done and dusted.
Vivendi has confirmed it sent a letter to Mediaset outlining a change of operations – proposing to buy just 20% of the pay TV sector Mediaset Premium, plus an additional 15% of Mediaset in three years, instead of the 89% which was originally planned. Mediaset has said outright that this proposal for a revised deal came “absolutely out of the blue” and has clearly broken the agreements of the contract signed on April 8.
First impressions suggest that Mediaset shareholders are unlikely to accept the offer of 20%, given the rather blunt and incensed wording used in Mediaset’s statement. However, Mediaset could still accept the 3.5% share swap agreement which Vivendi still wants to keep in place, for now anyway.
The alliance was intended to allow Mediaset to focus more on content and let Vivendi handle distribution, and for Vivendi it was set to be the largest part yet of its expansion strategy being pursued by its chairman Vincent Bollore. What makes this news more surprising is Bollore’s longstanding close relationship with the owners of Mediaset, the Berlusconi family; one which could now be on the ropes.
Vivendi’s management team sent Mediaset the new proposal after apparently reviewing the results of its pay TV business and deciding that the returns weren’t quite as fruitful as first thought – noting “significant differences”. We’re not suggesting that Mediaset has done anything quite as serious as submitting falsified accounts, but it certainly looks as if Vivendi is hinting at something along those lines. Although this is difficult to believe considering Mediaset Premium’s financial worries are clear for all to see, having lost €85 million ($93.5 million) last year.
Mediaset Premium also suffered woeful subscriber losses during 2012 and 2013 in the midst of the Eurozone crisis, when the Italian economy was considered almost on the brink of collapse. From a peak of over 5 million Italian homes holding a Mediaset Premium smart card, the number of active users fell away to today’s figure somewhat closer to 1.7 million.
It could be that Vivendi has sought to break a legally binding document and there will be ramifications for this, and failing the finalization of the deal on September 30, Mediaset could be eligible to claim up to €1 billion ($1.1 billion) in damages, according to Italian newspaper Il Sole 24 Ore.
It remains under-wraps exactly what Vivendi saw in Mediaset’s results that spooked it into slashing its proposed stake by 69%, particularly because the deal has the potential to create a major European content owner and distributor with a total customer base of over 18 million.
Mediaset, founded in the 1970s by controversial former Italian prime minister Silvio Berlusconi, is a significant rights holder having been pushed into the red after spending €700 million ($770 million) for exclusive rights to broadcast Champions League football matches in 2014.
Vivendi was also expected to purchase the remaining 11% of Mediaset Premium, owned by Telefonica, some way down the line after buying the 89% stake for $912 million. Vivendi also recently purchased more stakes in Telecom Italia bringing its total share to 24.9% – just below the 25% mark which would see another hostile takeover bid.
“The Board of Directors of Mediaset, already called for 28 July 2016 in order to approve the half yearly results, will take an official position on the aforementioned proposal. Mediaset is absolutely determined to assert and protect its rights and interests in any appropriate manner and place,” said the statement published by Mediaset on July 26.
Vivendi’s own statement said, “such a structure would fully align the interests of the respective groups. Acquiring a direct stake in Mediaset Premium will enable Vivendi to bring its know-how in pay TV, while keeping intact the synergies between pay and free TV activities within the Mediaset group. This proposal represents a more ambitious project, in line with the development of the television market and the strategy developed by our main competitors. It also reinforces Vivendi’s commitment to building a major strategic alliance with Mediaset and Mediaset Premium.”