Telecom behemoth Telefonica (TEF) is trying to gain full control of Spanish pay-TV group Distribuidora de Television Digital, or DTS, by acquiring Mediasets. Reportedly, Telefonica has made a €295 million ($400 million) bid to take over 22% stake in DTS which is currently owned by Mediasets.
Earlier, on Jun 2, 2014, Telefonica reached an agreement with Promotora de Informaciones, S.A. (:PRISA) to acquire the latter’s 56% stake in DTS for €750 million ($1.017 billion). The Mediasets deal will increase Telefonica’s stake in DTS to 78%. However, the deal is yet to receive the anti-trust approval and the green signal from PRISA’s sponsoring banks.
Although Telefonica will become the owner of DTS, Italian media conglomerate Mediaset also stands to benefit from the transaction. Madrid-based Telefonica will pay €10 million ($13.56 million) to Mediaset if its deal with PRISA gets through. Mediaset could get an additional €20 million ($27.12 million) based on DTS’ rise in subscriber base over the next four years following the closure of the PRISA transaction.
Further, the Italian mass media company will receive an additional €30 million ($40.68 million) subject to acceptance of Telefonica’s offer and the surrender of its preferential right to acquire PRISA’s stake in DTS. This implies that Mediaset can receive up to $355 million depending upon the successful closure of the deal and the future performance of DTS.
Telefonica has been concentrating on Pay-TV to offset traditional access line loss. The carrier exited the first quarter of 2014 with total Pay-TV subscriber base of 3.6 million marking year-over-year growth of around 8%. Strong performance on the home ground and from its Brazilian subsidiary Telefonica Brasil (VIV) facilitated the impressive results.
Telefonica has been successful in increasing its Pay-TV access market share in the main markets, where the company operates. We believe the DTS acquisition is part of its strategy to continue with the growth momentum.
Telefonica currently carries a Zacks Rank #3 (Hold). Better-ranked stocks worth considering within this sector are Kyocera Corp. (KYO) and Level 3 Communications Inc. (LVLT). Both the stocks currently carry a Zacks Rank #2 (Buy).Read the Full Research Report on TEF
Read the Full Research Report on LVLT
Read the Full Research Report on VIV
Read the Full Research Report on KYO
Zacks Investment Research
- Personal Investing Ideas & Strategies