Mediaset strengthens hand for European TV merger talks with Pro7 stake

By Elvira Pollina and Douglas Busvine

MILAN/FRANKFURT (Reuters) - Italian broadcaster Mediaset has bought a 9.6% stake in Germany's ProSiebenSat.1, effectively securing a seat at the table in any future discussions on creating a pan-European TV company.

The news of the 330 million euro ($368 million) investment follows months of speculation that Mediaset, controlled by former premier Silvio Berlusconi's holding company Fininvest, wanted to merge with Munich-based ProSieben.

The German group's beaten-down shares jumped as much as 7% in response.

Both companies, as well as European rival RTL Group and Britain's ITV, are struggling with weak advertising revenues as younger viewers shift to streaming offerings from Netflix and Amazon Prime.

Mediaset, which is 28.8% owned by French media giant Vivendi, has made no secret of its ambition to become the first free pan-European broadcaster.

Yet, so far, attempts at cross-border deals to create a so-called 'Euroflix' have come to nothing, stymied by a lack of synergies - a result of the many languages and varied tastes of viewers across the region.

In April Mediaset's chief financial officer told shareholders there were at that time no plans to expand in Germany with ProSiebenSat.

The Milan-based broadcaster tried to broaden its business in 2016 with a pay-TV agreement with Vivendi aimed at building a southern European media powerhouse.

But the deal fell through when Vivendi backtracked, leading to a court battle that soured relations between the two.

Vivendi was later forced by Italian regulators to transfer most of its voting rights in Mediaset into a trust because of antitrust concerns. Vivendi is the top shareholder in Telecom Italia.

Earlier this week Vivendi’s pay-TV group Canal Plus agreed to buy European rival M7 for about 1 billion euros to expand its presence in a series of European countries.

Vivendi declined to comment on Mediaset's acquisition of a stake in ProSiebenSat.1.

FINANCIAL INVESTMENT

Commenting on the stake purchase, Mediaset chief executive Pier Silvio Berlusconi, the son of the former Italian prime minister, said: "The friendly acquisition of a stake in ProSiebenSat.1 is a long-term choice."

Responding, ProSieben CEO Max Conze welcomed the Mediaset stake as a "vote of confidence in our strategy and team".

Sources from both sides stressed that the move was a financial investment.

Mediaset does not plan to further increase the stake at the moment or seek board representation at the German group, a source close to the matter told Reuters.

Bankers and analysts said Mediaset had secured a cheap entry after ProSieben's stock touched seven-year lows in March, reflecting market scepticism over the turnaround effort pursued by Conze, who joined last June from UK appliance maker Dyson.

Conze, who has restructured ProSieben into three divisions and wants to bolster its e-commerce portfolio to diversify away from traditional commercial TV, has backed his own strategy by investing 2 million euros in ProSieben stock.

"It's a smart opportunistic move by Mediaset to play value," said one media banker of the deal. The step would also deter private equity players who had recently been looking at ProSieben from pursuing a possible buyout, the banker added.

Mediaset bought the stake through an option structure called a 'collar', another banker said, effectively enabling it to acquire it in one go without triggering disclosures at lower thresholds of 3% and 5%.

This approach has been deployed by Chinese investors to build stakes in carmaker Daimler, fuelling concerns in Germany that foreign investors and their advisers had figured out a way to bypass the system.

SECOND LARGEST

Mediaset, which also controls Spanish free-to-air broadcaster Mediaset Espana, is now ProSieben's second-largest shareholder in terms of voting rights, after Capital Research Global Investors.

Last month, Mediaset's finance chief said the group could take up 1 billion euros ($1.1 billion) in new financing for potential acquisitions. Mediaset said the deal would not affect a decision on a dividend payment expected in July.

The tussle with Vivendi has left Mediaset weaker in relation to other potential participants in any 'Euroflix' project, making the acquisition of the ProSieben stake an important step towards being included in any wider deal.

Talks on forming alliances are happening between Mediaset, ProSieben and Discovery, as well as with France's TF1 and RTL Group, said one banker close to the situation.

ProSieben is meanwhile seeking more partners for its own streaming platform, called 'Joyn', that will launch in June in partnership with Discovery Inc.

Luxembourg-based RTL has rebuffed ProSieben's invitation to sign up to Joyn and is pursuing its own streaming projects. Its CEO recently departed abruptly however, leading the banker to suggest RTL may become more open to cooperation.

Mediaset's move comes two weeks before ProSieben holds its annual shareholders meeting, where the company's nine existing supervisory board members are up for re-election.

($1 = 0.8964 euros)

(Writing by Douglas Busvine; Additional reporting by Arno Schuetze, Alexander Huebner, Stephen Jewkes and Gwenaelle Barzic; Editing by Keith Weir and Jan Harvey)