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MEDIASET ESPAÑA: VIVENDI AND MEDIASET ITALIA REACH AN AGREEMENT (ANÁLISIS BANCO SABADELL)

 Vivendi and Mediaset Italia announced jointly yesterday that they have reached an agreement to put an end to all legal disputes between the two companies. In the agreement, Vivendi pledges to to sell the 19.19% stake in Mediaset Italia it holds through Simon Fiduciaria within a 5-year period, whereas Fininvest will acquire the 5% stake in Mediaset held directly by VIV at a price of € 2.70/sh. (vs. € 2.68 at yesterday’s closing price). The 24% stake to be sold has a market valuation of around € 760 M (~2% of VIV’s market cap). VIV would keep a 4.61% stake. Additionally, according to this agreement, VIV will vote in favour of Mediaset Italia’s transfer to Holland.
 Dividend: As stipulated in the agreement, Mediaset Italia has announced an extraordinary dividend of € 0.30/sh. (11% yield) for Jul 2021. We do not assume any dividend payments by TL5, as the company might use the cash to strengthen its positioning in preparation for the aforementioned pan-European move (the company’s base-case scenario).
 For TL5 (50.2% held by Mediaset Italia), this agreement could pave the way to seek a pan-European deal with Mediaset Italia with the possible resumption of the merger plans of both companies (the previous merger project was launched in the summer of 2019 and cancelled in the 4Q’20 due to lawsuits with Vivendi), although Mediaset Italia has already outlined it has no immediate plans in this regard. Note that TL5 has reiterated on several occasions that the pan-European consolidation is its central-case scenario and the reason explaining his decision of getting hold of the stake in ProSieben Sat (13.2%) and not resuming such a generous dividend payment as it previously paid.
 Exchange ratio from the previous deal (MFE): We do not think it can be extrapolated, as two years have passed since the previous move, which was based on independent valuations. In any event, looking at the same exchange ratio proposed in MFE, our valuation of TL5 would be € 6.25/sh. (+17% vs. yesterday’s closing price). Although at that time TL5 had similar FCF yields to the current ones, shareholder remuneration used to be quite generous (~15% including the share buyback), whereas now we do not expect any dividend payments.
MARKET IMPACT
In any event, we continue to recommend TL5, as the stock’s current trading levels are attractive (P/E’21e 9.3x) and might benefit from the expected recovery of the advertising market (we expect +62% growth in 2Q’21, with a +150% increase in April). As for the pan-European deal, we would have to wait to see the terms of the transaction before we can assess the impact, although we believe there is upside potential from the current trading levels, even if the merger process is resumed.