Vivendi Wants to Retune Mediaset Pay-TV Deal
France's Vivendi (VIVEF) pulled the plug on plans to buy the pay-TV operations of Italy's Mediaset (MDIEF) on Tuesday, claiming due diligence had revealed discrepancies in the target's valuation and forced a rethink that led to it seek a bigger stake in Mediaset itself.
Mediaset, founded by former Italian Prime Minister Silvio Berlusconi, said on Tuesday that Vivendi had reneged on an April agreement to buy 100% of Mediaset Premium and now wanted just 20% of the unit. The French company has also requested the right to buy a 15% stake in Mediaset, according to the target.
"Vivendi's new position comes completely out of the blue and was not agreed in any way," said Mediaset. "It is, moreover, in clear contradiction with the commitments made by Vivendi in the contract signed on 8 April."
Mediaset shares tumbled to €2.90 ($3.19) on Tuesday, down €0.326, or just over 10%, on their Monday close. Vivendi shares traded at €17.40, up €0.03, or less than 1%.
Vivendi, led by its largest shareholder and chairman Vincent Bollore, had earlier agreed to swap a 3.5% equity stake with Mediaset and take over the Italian group's 89% stake in Mediaset Premium to make up for the difference in valuation of the cross shareholdings. The agreement valued Mediaset Premium at about €740 million at the time the deal was struck. Vivendi also planned to buy the remaining 11% of the business from Telefonica SA,of Spain.
The deal was designed to cement an alliance that was a cornerstone of Vivendi's plan to create a southern European media giant equipped to challenge Rupert Murdoch's Sky and Netflix (NFLX) - Get Report , which is expanding rapidly in Europe.
That alliance appeared to have collapsed as of Tuesday.
"Vivendi wishes to clarify that its CEO Arnaud de Puyfontaine, in a letter dated the 21st June, informed Mediaset management of significant differences in the analysis of its subsidiary's...results," Vivendi said. "In addition the group yesterday made a proposal to Mediaset to come to a new agreement, under different terms, so as to pursue discussions."
The differences "came to light during the process of due diligence", said a spokeswoman for Vivendi. "We are confident that there's potential for a new deal."
According to Mediaset, Vivendi's new proposal retains the plan to swap an initial 3.5% stake but now includes the acquisition of a further 15% stake through a mandatory convertible bond that would mature in three years. It was not immediately clear on what terms that bond would be issued, nor how Mediaset would fund the difference in valuation of the proposed 3.5% stake swap in the absence of handing Mediaset Premium to Vivendi.
The acquisition of an additional 15% stake in Mediaset by Vivendi would redesign the power structure at Mediaset, introducing rival shareholder to the Berlusconi family, which effectively controls the group via a 33.5% stake owned by family holding company Fininvest.
Vivendi's plan to buy just 20% of Mediaset Premium also leaves the Italian owner with the ongoing headache of managing a sub-sized, loss-making and unwanted pay-TV operation.
Vivendi's willingness to take on the pay-TV business may have been tempered by its own struggle to turn around its French pay-TV operation Canal+. Bollore has warned that Canal+'s French channels will lose about €400 million this year and could be closed down if they can't be returned to profitability. The billionaire's plan to revitalize the network was dealt a major blow in early June when French regulators blocked a €1.5 billion plan to buy access to programming owned by local sports broadcasting rival BeIN Sports.