The initial enthusiasm over the planned Vivendi acquisition of Mediaset’s Premium pay-TV services has cooled a little, at least as far as equity analysts at Deutsche Bank (DB) are concerned.

While admitting that their examination makes a “finely balanced” case, the bank is still not upgrading its advice to clients to ‘BUY’ from ‘HOLD’ for any of the parties involved (Vivendi, Mediaset or Mediaset Spain).

Laurie Davison, DB’s media analyst, says that now that the final numbers are in, the value of the deal to Mediaset is well down on the amount anticipated. He says: “The deal value comes in at €633 million value to Mediaset compared to the €990m/€890m [anticipated]. Discount this at 10% and net value falls to E453m. This discounting is not just an academic exercise. The emphasis from the Mediaset conference call and from discussions with the company suggest partnership with Vivendi on pay-TV is the priority not cash realization.”

DB’s Davison, in a 20-page report, continues: “This emphasis on pay-TV partnership and long–term alliance means Mediaset could still be investing. We had hoped for a clean exit; a sale of Premium which we regarded as unlikely to ever generate any material positive profit in Italy. The prospects for this partnership do not look much better. Vivendi’s track record in innovating in pay-TV with Canal+ and OTT is not good. C+ is operating with amongst the highest churn levels in Europe and has not grown EBITA in 7 years. Whatever, its initial foray into OTT outside of France, has failed in Germany. Mediaset is not ruling out investment in new market entry (“Latin-speaking markets” and those not currently covered by “new operators” specifically mentioned) or joint content creation. Mediaset management have continued to place emphasis on pay-TV remaining strategic as an offset against the pressures on the linear TV network which could be used as justification for further involvement in loss-making operations.”

There are some positives. Davison adds: “Nothing can be ruled out with Vivendi with €6 billion of cash to deploy and clear interest in Southern Europe. There is also the functional overlap of Bollore experience in free-to-air operations (Direct8 & DirectStar) which overlap with Mediaset’s residual Italian franchise. But whereas there are genuine synergies between Premium and Vivendi’s pay-TV and OTT operations, there is little cross-border synergy with Mediaset’s remaining free-to-air ops. Arguably, Vivendi have what they want – Premium in Italy to combine with Telecom Italia for an Italian triple play. The partnership means it gets guaranteed supply of Mediaset/Medusa content. The 3 year share lock-up means it will be at least September 2019 before Vivendi is able to increase its stake >5%. So, yes, there is a case, but it looks distant and highly uncertain to us. Not a compelling BUY case. Either full advertising recovery or some buyout premium is already in the price. So this is not a free option either.”

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