Not So Merry Christmas for Mediaset as Italian Media Giant Tussles With Vivendi

Silvio Berlusconi Shame - H 2013
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Former allies, French media giant Vivendi and Italy's Mediaset have declared all-out war.

Former Italian prime minister Silvio Berlusconi’s media empire Mediaset has had a roller coaster of a year on the Italian stock exchange amid a showdown with Vivendi. And a peaceful Christmas does not seem to be in store for the companies. 

Back in April, the company agreed to a deal with the French conglomerate, led by Vincent Bollore, to exchange 3.5 percent stakes in each other, with Vivendi also agreeing to buy pay TV arm Mediaset Premium.

After years of battling falling ad revenue, Mediaset's stock went up as insiders saw the dawn of a new pan-European pay TV company reaching across France, Italy and Spain to rival such video and original content heavy-hitters as Sky and Netflix.

But Vivendi abruptly pulled out of the deal in July, saying that Mediaset had inflated the potential profitability of the deal, causing Mediaset's stock to tank. The two companies then battled things out in public and in the press, with both sides sending out press release after press release. Mediaset has filed a $1.56 billion lawsuit against Vivendi for claimed damages as a result of the collapsed deal.

Yet Bollore keeps twisting the knife. Last week, Vivendi spent $860 million to increase its stake in Mediaset to 20 percent, and this week it announced plans to raise that to up to 30 percent. The value of Mediaset shares has spiked once again this week amid the developments.

But Mediaset has expressed fear that Vivendi has been building its stake to make a full-blown takeover attempt. Berlusconi's holding company Fininvest owns a 40 percent stake and has said it would look to add another 5 percent to strengthen its position. Under Italian rules, once an investor buys more than a 30 percent stake, it crosses a legal threshold that would require it to launch a takeover offer for all outstanding shares of a company.

One analyst said he doesn't expect a full takeover to be the goal though. "We see Vivendi’s ultimate interest as controlling Mediaset in the same way as it (and Vincent Bollore) has done with a number of other assets, [that is] acquire a large minority stake and influence the strategic direction of the company," said Liberum Capital analyst Ian Whittaker.

He explained the benefits this way: "It would give Vivendi effective control of Mediaset Espana where Mediaset owns 50.2 percent. This would fit in with Vivendi’s statements before that it also wants to expand its operations into Spain." And Whittaker said: "Vivendi’s control of Mediaset’s pay TV business together with its strong influence over Telecom Italia would provide it with a significant advantage for share of the Italian pay TV market."  

Indeed, on Thursday, Vivendi announced that it now owns 28.80 percent of Mediaset share capital and 29.94 percent of the company's voting rights. Further proof that the companies refuse to work together, a Mediaset spokesman said the company had no comment on Vivendi's latest increase in its shareholding as the move was expected.

Fininvest has reported Vivendi, whose actions it describes as hostile, to Italian bourse regulator CONSOB. Prosecutors in Milan are currently investigating a Fininvest complaint that Vivendi backed out of the earlier deal to devalue its stock before going on its recent buying spree. 

Vivendi maintains that it is simply trying to expand its presence in Southern Europe. Their activities are "in line with the group's intention to develop its activities in southern Europe and its strategic ambitions as a major international, European-based media and content group," the company said in a statement while it tries to keep the battle out of the courts. Mediaset meanwhile believes the judicial system is the only thing that may save them as they push their suit to trial. 

And Berlusconi is not the only one who may not sleep soundly this Christmas. Italian foreign minister Angelino Alfano expressed the government’s concern over the Mediaset scandal. "We greatly respect market rules and expect the same respect back," said Alfano. "This issue affects the Italian system as a whole and not just one private company."

While Bollore has been putting on the pressure, investors who have timed things right have benefited from Mediaset shares' roller coaster ride amid the Vivendi tussle. On Thursday, the stock fell 12.4 percent, but at the market close, it was up 4 percent year-to-date at 4.00 euros, or $4.18. In comparison, Vivendi ended the day down 10 percent year-to-date at 17.86 euros, or $18.65.

If 2016 was a year of upheaval for Mediaset, it will take time to see whether 2017 will be a brighter year for the Italian company or for Vivendi.