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TF1 Boosts Satellite Pay-TV Position

By | July 31, 2002

      The merger between rival satellite pay-TV platforms Canal Satellite and TPS in France has moved a step closer after French broadcasting giant TF1 gained control of TPS. TF1, along with fellow shareholder M6, acquired Suez’s 25 percent stake in TPS for 160 million euros ($157 million) in cash. The deal gives TF1 a 66 percent stake and M6 a 34 percent in TPS. TPS lags behind Canal Satellite in terms of subscribers, but the deal is a good one for TF1, which has made no secret of its desire to see the two platforms combine.

      When such a merger would take place is open to question. In recent months, there has been potential consolidation of satellite platforms in Spain, Italy and Poland as a number of deals have been struck to bring loss making satellite platforms together. The key to consolidation in France could well be the reaction of the European Commission (EC) to consolidation in Spain between Sogecable and Via Digital. This deal could be approved later this year (See Interspace 748). If it is, it is likely this would speed up a merger of the two satellite platforms in France.

      A number of industry analysts believe potential consolidation with Canal Satellite is the key behind TF1’s move to increase its stake in TPS. Marina Cohen, a media equity analyst at KBC Securities, told Interspace: “We think the aim of this operation is for TF1 is to participate in the potential consolidation of French pay-TV. We don’t know if the merger is possible or not. It depends on the EC who will decide this. They want to be in a strong position to negotiate. They are in a better position now because they can negotiate with 66 per cent of the capital rather than 50 percent.” Brandon DiMassa, a media equity analyst at Dresdner Kleinwort Wasserstein, agreed. “It sets up the eventual consolidation at some point. But, I don’t think it is going to happen overnight.”

      Even if a merger doesn’t happen in the near future, the deal is a good one both for TF1 and TPS. TPS previously had a very complicated shareholder structure that included France Telecom, France Television, Suez, M6 and TF1. The operator now only has two shareholders so efficiency and decision making should improve. TPS is scheduled to go profitable by 2004. DiMassa believes it is a good deal for TF1. “I think it is a good asset. It is heading in the right direction. It is now EBITDA [earnings before interest, taxes, depreciation and amortisation] positive. Its losses are decreasing. I think they realized they needed to cut their programming costs, which they did this year, big time. Subscriber growth is slowing a little bit but they are getting towards profitability so in that sense we do think it is a good asset.”

      While on the whole the deal is positive for TF1, it could have stretched itself financially with the deal. It has expressed an interest in acquiring the assets of Kirch Media in Germany, although this now seems unlikely. TF1, with the consolidation of TPS’ net debt, will have over 800 million euros ($784.9 million) of net debt by the end of 2002, leaving it precious little room to manoeuvre. Cohen said: “TF1 has a relatively significant net debt. They have reached the limit in terms of debt. Their net debt was around 62.5 percent of the shareholders equity. With the acquisition of TPS, the ratio will be around 80 percent to 90 percent. So, now it will become more problematic if they want to make other acquisitions. They have spoken about acquiring Kirch assets. This will be more difficult now if they want to do that.”

      The overall goal for TF1 will be to initiate a merger with Canal Satellite, although it is unlikely to take a majority stake in a combined platform. DiMassa said: “TF1 will probably end up with a minority stake in the new entity. I don’t think they want to own a 100 percent stake in a combined platform. I think they would mean taking on a different business plan to what their base is, which is free-TV.”

      –Mark Holmes

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