Banks analyse TF1, M6 merger

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French commercial networks TF1 and M6 are in exclusive merger negotiations. The intention is to create a French media group which offers TV and radio as well as digital choices and content production. If approved by the authorities, the proposal would create France’s largest broadcasting group.

Analysts at investment bank Exane/BNPP note that the new entity is expected to generate €3.4 billion revenues and a current operating profit of €461 million (c14 per cent margin). Annual synergies (EBITA impact) are estimated at €250m-€350 million (c24 per cent margin if no new revenues), within three years after completion of the transaction.

The bank summarises, saying: “The combined group will aim to distribute 90 per cent of its Free Cashflow in dividends. A new name reflecting the diversity and the strength of its assets will be given to the merged company. It would remain based in France and listed on Euronext Paris. The project has been unanimously approved by the Boards of Groupe TF1, Groupe Bouygues, RTL Group and Groupe M6. It is expected to complete by year-end 2022, after consultation with employees’ representatives, regulatory approvals (antitrust and CSA) and shareholder meetings of both companies.”

“Long-term Groupe Bouygues and RTL Group will be holding respectively 30 per cent and 16 per cent of the new group, following the acquisition of an 11 percent stake by Groupe Bouygues from RTL Group, for a consideration of €641 million. Groupe Bouygues would have exclusive control over the merged company, acting in concert with RTL Group as a strategic shareholder. The 54 percent Free float will be constituted of c29 per cent for the existing float of Groupe M6 and c.25 percent for the existing float of Groupe TF1,” adds the bank.

“We view the deal as a positive for RTL particularly but also M6, TF1 and Vivendi. Bouygues seems to have paid a fairly full price for its stake in the new entity (c. €26.30/share for M6 vs current price of €17.50 and M6 shareholders are set to receive a €1.50 special dividend on top of the €1.00 normal dividend before closing). In terms of synergies they are expected to come from both revenues and costs,” says Exane/BNPP.

However, the bank cautions that closing the deal this year “seems ambitious”, adding: “That said, with the structure of M6 Edition, retaining the right to broadcast the M6 channel on DTT, suggests it responds well to the rule of no single shareholder owning more than 48 per cent if a channel has more than 8 per cent audience share. We note that the merged group eventually will have to drop 3 channels for the deal to go through.”

Another cautionary comment comes from analysts at Jefferies, which suggests that France’s media regulators are likely to oppose the proposal. However, Jefferies’ hedges its bets by saying “it is unlikely to have been announced unless there was confidence in the outcome.”

Deutsche Bank said there are several layers of approval still required: “We think RTL’s ability to find a partner in the form of TF1 and push its agenda for in-country consolidation a positive. Through the transaction, RTL’s M6 stake was valued at €26.30 per share according to the press release, which is at a ~50 per cent premium to its last close at €17.50 and this should be taken well. However, given the concentration of market share the combined entity presents, we do think the market will wait to see how the approvals progress before the entire value crystallization may be reflected in the underlying share.”

Formal approvals are required from French antitrust and media regulators. Expect scrutiny to focus on plurality and impact on advertisers, independent production studios and rival TV distributors (including Orange). Closing is outlined as being envisaged by the end of next year.


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