Mediaset Italia merges with Mediaset España valuing it at 6.28€/share (-9% vs trading)

Renta 4 | Mediaset Spa and Mediaset España have announced their merger through a share exchange under the name of MediaForEurope (MFE), which will be the new parent company, with the intention of creating a pan European platform, which will trade in the Italian and Spanish stock markets, able to unite a combined audience of 107 million viewers.

 The operation follows Mediaset Italia’s acquisition of 9.6% of Prosieben. They hope that synergies and efficiencies will deliver cost savings of between 100 and 110 million euros before taxes between 2020 and 2023. Each shareholder in Mediaset Italia will receive one share in MFE, while each shareholder in Mediaset España will receive 2.33 MFE shares. This values Mediaset España  at 6.28 euros/share (-9% vs Friday, -17% vs our estimation).

Once the operation is concluded, MFE will distribute 100 million euros in dividends and wick carry out a share buy back programme of up to 280 million euros at a maximum price of 3.40 euros/share. In the medium term the pay out will be a minimum of 50%. The merger is pending approval from the respective shareholder general assemblies, which will meet on 4 September, and the operation is expected to take effect during Q419. Mediaset España shareholders who vote against the merger will receive 6.544 euros/share (-5% vs trading on Friday). In addition, Mediaset España has decided to end its fourth share buy back programme.

Good news to the extent that the operation seeks to confront competition from platforms like Netflix, Amazon or HBO, although at the same time we understand the sector’s problems are deeper and more complex. We expect a negative market reaction for Mediaset given that the 6.28 euros/share at which it is valued is -9% below the value it reached before the regulator suspended trading on Friday. Objective Price 7.56 euros/share. Overweight.