The case for European media consolidation got a shot in the arm recently when reports surfaced that French media and communications conglomerate Vivendi was hot on the trail to beef up its content-distribution assets, eyeing a purchase of European satellite giant Sky plc.
Though Vivendi has denied an interest in the satellite-TV giant, the speculation has cast a light on the European media arena, a heretofore lukewarm market that is expected to be a hotbed of deal activity this year.
It’s been less than a year since 21st Century Fox chairman Rupert Murdoch consolidated his European satellite-TV assets into one entity — Sky plc. At the time, Fox said the move would lead to added benefits for the combined businesses, including accelerated technological innovation and enhanced customer service.
Combining those assets also had some unintended purposes: It makes them easier to roll up. 21st Century Fox officials declined comment.
A PRICEY BUY
Sky has been generally left out of the consolidation conversation, mainly because of Fox’s stake and the fact there were other properties in Europe to be had. And it wouldn’t come cheap — estimates in the U.K. press are that the satellite-TV company could attract about $43 billion — but it would be less pricey than the other major distribution player in the space, John Malone’s Liberty Global.
Pivotal Research group principal and senior media & communications analyst Jeff Wlodarczak said Liberty Global might be too big for another company to swallow. And so far, there don’t seem to be any attractive targets, aside from small, one-off acquisitions, to make the cable giant an aggressive buyer.
Liberty Global’s enterprise value is about $94 billion, Woldarczak estimated, adding that any potential buyer would have to tack on a 50% premium, bringing the total to about $125 billion. “Maybe Vodafone can afford that, or maybe Comcast, which I think is a reasonable possibility in about five years,” he said.
Speculation surrounding a possible Liberty-Vodafone merger was rampant late last year, especially after the wireless carrier outbid Liberty Global for two prize assets — German cable operator Kabel Deutschland ($10 billion) and Spain’s Ono ($8.9 billion). But that talk died down after Vodafone and rival BT switched their focus to mobile assets.
Liberty Global has been no slouch on the deal front: It purchased KBW in 2011 for $4.48 billion, cementing its status as Germany’s second- largest MSO; bought Virgin Media in 2013 for $16 billion, making it the largest cable operator in the U.K.; and paid $13.7 billion last year to acquire the remaining interest in Dutch cabler Ziggo.
Recently, though, it has focused on internal operations, including its Project Lightning initiative in the U.K., a network-extension program to connect 4 million homes and businesses in its footprint to broadband by 2020.
Sky is the largest satellite service in Europe, with about 20 million subscribers. It was formed last year through the consolidation of all of 21st Century Fox’s satellite assets — Sky Deutschland, Sky Italia and British Sky Broadcasting — in a deal valued at about $9.3 billion.
Some analysts have said that with large outlays for programming like English Premier League soccer rights — for which Sky paid $6.3 billion through 2019 — a Vivendi-Sky merger would make sense on a cost basis. But those same analysts also cautioned that Murdoch is unlikely to give up his 40% stake, adding that the speculation could be an attempt by Vivendi to gauge shareholder sentiment to a deal with Sky or another provider.
Vivendi has been under pressure from activist shareholder, U.S. hedge fund P. Schoenfeld Asset Management, which has been pressing for higher returns. It has also has been looking to extend the reach of its Canal Plus media assets.
According to Vivendi, Canal Plus reaches about 10 million subscribers through its pay TV and free-to-air channels in France, Africa, Poland and Vietnam and also operators production and film studios.
Vivendi avoided a possible confrontation with the hedge fund at its upcoming annual meeting of shareholders — set for April 17 — when it agreed to increase its dividend payout to $7.3 billion from $6.2 billion.
And it may have tipped its hand regarding its future M&A aspirations — it recently agreed to buy an 80% stake in French telecom company Orange’s online video site Dailymotion for about $287.8 million.
In a recent interview with The Financial Times, Vivendi CEO Arnaud de Puyfontaine said the conglomerate wants to become a “dedicated player in media and content.”
“We are thinking about transformational transactions,” he told the paper.
All Eyes on Sky
Pan-European satellite giant Sky plc has reportedly caught the eye of some consolidators across the pond, including some heavy hitters in the media space such as Vivendi:
Subscribers: 20 million
Countries of Operation: 5 (U.K., Ireland, Austria, Germany and Italy)
Revenue: £11 billion ($16.45 billion)
Content Investment: £4.6 billion ($6.88 billion)
SOURCE: Sky Plc
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