Borders will fall for Euro TV titan

ProSieben, SBS in $4.4 bil deal

COLOGNE, Germany -- Europe greeted a new broadcasting giant Wednesday when Germany's ProSiebenSat.1 acquired SBS Broadcasting Group in a deal valued at €3.3 billion ($4.4 billion).

The new, expanded ProSiebenSat.1 Media AG will have a footprint that covers 13 countries and counts 24 free TV, 24 pay TV and 22 radio networks among its main assets.

With combined annual revenue of about €3.1 billion ($4.2 billion) and EBITDA profits of €691 million ($928 million), ProSieben/SBS will be Europe's second-largest television conglomerate, trailing only Bertelsmann's RTL Group.

For the studios and other international companies, the agreement marks the emergence of a player capable of making pan-European rights deals. ProSieben, already a major buyer of U.S. movies and TV series such as "Grey's Anatomy," "Lost" and "Desperate Housewives," could now step up with deals covering half of Europe.

For ProSiebenSat.1's owners, private equity groups Permira and KKR, it marks a further triumph in their blitzkrieg of the European media landscape. In less than three years, Permira and KKR have gone from behind-the-scenes players to dominate European TV.

From 2005, when they acquired SBS, to December, when they paid Haim Saban's consortium about $4 billion for a controlling stake in ProSiebenSat.1, KKR and Permira have become European TV's new 800-pound gorilla.

It is unlikely to stop there. ProSiebenSat.1 CEO Guillaume de Posch, speaking during a conference call, said the bulked-up company will look to expand "first east, then west."

East as in Eastern Europe, where SBS already controls four channels -- in Bulgaria, Hungary and Romania. The high growth rates and booming advertising industries in Eastern Europe also have attracted the attention of RTL, which has stakes in channels in Hungary and Russia.

The East may become the new battleground as RTL and ProSieben set to establish themselves as the preeminent force in these emerging markets.

Another battleground will be production.

RTL, with its production subsidiary FremantleMedia, is the global giant in TV production. Shows including "American Idol," "X Factor" and "Neighbours" have sold around the world.

ProSiebenSat.1, while operating a substantial in-house production operation in Germany, has yet to reach far beyond its borders. But De Posch made it clear that is the goal.

"It is all about content," he said. "We will achieve a greater critical mass (with the SBS deal), which will allow us to produce a broader selection of high-quality programming throughout our European footprint."

It looks likely that ProSieben will farm out its production activities. The group's in-house production company is reportedly on the block, and several media companies, including Munich-based EM.TV, have expressed interest in buying it.

Many observers see a logical production partner in U.K.-based All3Media, which also is owned by Permira. Last month, All3Media, already the U.K.'s largest independent TV production company, acquired Germany's No. 1 TV production indie, MME Moviement (HR 5/7).

De Posch said the new "critical mass" of ProSieben/SBS will allow a more efficient production process and allow rapid pan-European distribution of hit shows, whether they be homemade or acquired product.

The same applies to such new products as ProSieben's video-on-demand platform Maxdome, which De Posch said will be ideal for certain SBS markets. The same goes, in reverse, for SBS music channel the Voice, which airs across Scandinavia and in Bulgaria, and which De Posch indicated could be suited for the German market as well.

But there are still some big questions surrounding the ProSieben-SBS deal.

The first is price: $4.4 billion is a major mark-up for SBS assets that, in 2005 at the time of the KKR/Permira takeover, were valued at $2.5 billion. At the time, some observers thought KKR/Permira overpaid, and they see Wednesday's deal as a blatant attempt to cash out.

De Posch defended the price tag, pointing to the evaluation of the so-called Independent Directors' Committee, a group ProSieben set up to audit SBS and come up with an asking price.

The independence of that committee has been called into question, particularly as the three-man group included MGM chairman and CEO Harry Evans Sloan, who founded SBS and was behind the 2005 sale to KKR/Permira.

Ex-BBC chairman Greg Dyke, who headed the Independent Director's Committee, defended the group's decision.

"We followed the entire transaction process and authorized the (final) transaction," Dyke said. "We are of the opinion that the acquisition of SBS was made at a fair price. In our estimation, the transaction is a very attractive possibility for ProSiebenSat.1 to create a unique television group in Europe."

ProSiebenSat.1 shareholders didn't seem to be bothered by the price. ProSieben stock had risen by more than 4% to €29.50 ($40) by late-day trading Wednesday.

A second big question is whether De Posch and SBS chief executive Patrick Tillieux, who has been named COO of ProSiebenSat.1, can successfully merge the two vastly different corporate cultures.

While ProSiebenSat.1 is a vertically integrated, centralized company, SBS is run more like a franchise operation, with a group of loosely linked "entrepreneurs" in Tillieux phrase. Tillieux has argued that this loose control, with a focus on "local management," has been the key to success for SBS.