Prisa signs deal to sell Cuatro to Telecinco

Telecinco to launch $677.4 million capital increase

MADRID -- In a landmark event in the Spanish television industry, Spain's leading private channel Telecinco announced Thursday (April 15) it has signed an acquisition agreement with media titan Prisa that gives the former 100% control of Prisa's free channel Cuatro and 22% of its satellite platform Digital Plus.

The deal sees Mediaset-controlled Telecinco launch a €500 million ($677.4 million) capital increase with preferential participation and Prisa receive shares of newly offered Telecinco stock, in addition to some €491 million ($665.2 million).

The deal, which followed a Telecinco general shareholders meeting that gave the administrative board a green light to move forward with the agreement late Wednesday, must be approved by Spain's competition authorities, probably by the beginning of the third quarter.

Left-leaning Cuatro caters to a different segment of the Spanish society than more central Telecinco.

"Telecinco is not only motivated by eliminating a competitor, but by accessing another target audience. Cuatro offers a younger demographic for advertisers. Of course, Telecinco will implement their business model -- which has been very successful. But it will maintain the young spirit of Cuatro," said a Prisa spokesperson.

Executives from both sides said the operation was not an easy one and that the calendar would depend largely on "fulfilling pre-determined conditions."

At the shareholders meeting, Telecinco president Alejandro Echevarria said Telecinco would try to apply its "experience, know-how and business model," referring largely to strict cost-control and in-house productions. Telecinco cut costs in 2009 some 10.3%, while producing 85.4% of its own content.

Echevarria did not answer a question about possible staff reduction, but did say that Prisa would have two of the 15 members on the new board and would control three of the newly formed group's eight channels, including its flagship 24-hour news channel CNN+ and two more pay channels. Prisa would foot the costs of renting the broadcast space and for the executive production.

Spanish broadcasters' financial woes caused by the tight advertising market have been exacerbated by a blossoming TDT sector, which is adding channels. By combining their interests, the two sides look to appeal to advertisers.

Telecinco and Cuatro combined would represent some 25.2% of the audience.

Prisa had been looking to sell its satcaster to pay off its €5 billion ($6.8 billion) debt and restructure its media business, emphasizing its free-to-air channel Cuatro. Last November it sold a 21% stake in Digital Plus to Spanish telecom Telefonica for some $707.5 million.

"Prisa needs the money," said one analyst. "But it's more than just that. The bottom line is that they are all looking to help their advertising dollars by going to advertisers with a broader offer of audience share."

Telecinco posted €48.44 million ($65.6 million) in net profit in 2009, divvying up 100% in dividends to its shareholders.

Both Prisa and Telecinco shares rose Thursday morning as investors heard the deal had gone through. Telecinco rose over 1% in the first hour of trading and Prisa jumped 3.5% to €3.10 ($4.20).
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