German TV, Print Giants in Talks About $16 Billion Merger

German TV giant ProSiebenSat.1 and publishing powerhouse Axel Springer are in early merger talks that could create a $16 billion media giant.

The Wall Street Journal reported on the early-stage talks.

The discussions come a decade after a previous deal failed amid regulatory opposition. Back then, Springer tried to buy ProSiebenSat.1, but Germany’s media watchdog and antitrust body opposed the deal. The German industry landscape has changed since then, the Journal highlighted.

Local industry folks have especially mentioned the rise of U.S. digital giants, such as Google.

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The combination would run counter to U.S. media and entertainment giants’ efforts in recent years to separate print businesses from film and TV operations. Among others, Time Warner spun off its Time Inc. magazine unit, and Rupert Murdoch split his empire into 21st Century Fox and News Corp.

A ProSieben-Springer combination would change the media market in Europe’s biggest economy and create a bigger rival to privately held Bertelsmann. The latter reported revenue of $18.2 billion (€16.7 billion). ProSieben and Springer on a combined basis would have had revenue of about $6.4 billion (€5.9 billion).

Observers said a combination would still face antitrust concerns. But Germany’s Federal Administrative Court last year ruled that the country’s media watchdog’s opposition to the 2005 deal attempt was unjustified, possibly removing one hurdle for a combination.

“At first sight, it would look like any deal would have no chance of going through,” Liberum Capital analyst Ian Whittaker said in a report. “ProSieben has a 44 percent share of the German TV ad market, and Axel Springer is the biggest player in national newspaper advertising, so this would create a dominant force in German advertising.”

He added: “However, we think there is a chance something may be allowed this time — the reason for this is that the EU in general and the German government in particular has been concerned about the power of the U.S. giants (particularly Google) in Europe, and a ProSieben/Axel Springer combination would be seen as a German national champion that would have a better chance of fighting back versus Google. This will not be a majority view, but we would not write off the chance of a combination.”

One of the biggest questions in a possible deal is who would be the acquirer or whether it would be a 50-50 merger. This time around, ProSieben has the larger market capitalization, meaning it is expected to take the lead role in a deal, the Journal said.

But Springer shot down such suggestions. It is controlled by Friede Springer, the widow of founder Axel Springer. Reports “regarding a relinquishment of control are completely unfounded,” Springer said in a statement on Tuesday. The company added it would continue to pursue a change of its legal form that would let Friede Springer maintain control “on a long-term basis and open up growth options.” That suggested that Springer would take the lead in a possible deal.

Twitter: @georgszalai

July 7, 2:30 a.m. Updated with Springer comment.