Pro7/Sat 1: What’s next?

It has been a weekend of frenzied activity as Discovery Communications mopped up the SBS broadcasting segment of ProSiebenSat.1 and took a useful slice out of TF1, and meanwhile Liberty Global pitched its offer for Benelux cable MSO Telenet. Full marks to Discovery for further extending its interests outside its pure ‘factual’ entertainment reputation. Indeed, one cannot help but praise the Discovery team for adding value and excitement to its portfolio of assets. If only the BBC via its Worldwide division had done the same!

But where does this leave ProSeben/Sat1 now? Pro7/Sat1 achieved a 10x recurring EBITDA price of €1.32 billion for the sale of SBS, and the word from Pro7 is that it will use €500 million of the proceeds to pay down corporate debt and the balance returned to shareholders. At the end of the day, Pro7’s debt ratio will be a very healthy 2.0x and some time next year it will eliminate the dual-share structure whereby the current preference shares will be converted into ordinary stock. One anxiety is that Pro7’s current preference shareholder/sponsors (KKR/Permira with 53 per cent of the stock) are looking to exit the company, and this is causing some concern, although a note from investment banker Morgan Stanley says this is only hypothetical at this stage.

Morgan Stanley stresses in its note that Germany’s network TV market is structurally stable (although Sky Deutschland might argue with that), but importantly audience fragmentation and regulation ought not to affect.

But the bank also asks what the next story might be for Pro7/Sat 1.  “We believe one of Pro7’s key catalysts has played out,” says the bank. “Further upside would, in our view, come from (i) higher than expected advertising revenue in German-speaking markets; (ii) stronger than expected growth in Digital, Adjacent and Content; or (iii) speculation about a potential takeover from a trade buyer at a premium to the current share price if private equity did decide to sell out.”

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