Some corporate brands are much more than a brand because of their intangible value. It is the case of El País, Spain’s best-selling newspaper for ages, which accompanied Spaniards in the country’s transition from those long years of dictatorship to democracy, and witnessed their deep social and cultural changes as well as their economic achievements during the last four decades. That is the reason why mass redundancies in 2012 were so traumatic not only for the company or the media sector but also for the Spanish society. Things will never be the same again.
Grupo Prisa, El País’ parent company, justified dismissals on the grounds of a necessary restructuring due to the economic crisis that had seriously affected advertising revenues, which at the same time had been burdened last years profits and so on…the reality is that Prisa has been saddled with a mounting debt because of many years of wrong management decisions. Debt amounted its peak at €5.5bn in 2008 and since then the company has been on the verge of breakdown in several times, suffered different debt restructurings and changed completely its shareholders’ composition. The debt has been reduced to current €3.2bn, but its market capitalisation stands at €267 million. Therefore, Prisa’s debt was the reason for those dismissals at the newspaper as well as for the recent media company’s capital increase and the disinvestments that can be discerned on the horizon.
Grupo Prisa was born in 1972 as a family-owned company but since the end of 2010 the US hedge fund Liberty Acquisitions Holdings has a stake of at least 51%. In other words, the majority company’s stakeholder comes from US. This meant the first bitter pill to swallow for the Spanish conglomerate but it survived and could refinance its debts.
Only some weeks ago sixteen vulture funds entered the capital’s firm to save it once more from financial bankrupcy. These funds will receive a package of convertible warrants totalling €372.6 million, which means 17% of the group, at a price of €0.2672 per share. In turn distressed funds will give Prisa a credit line of €353 million to ensure the company’s viability. The operation would imply five or six extra years for Prisa to repay their debts and three more to sell assets, so that it has committed to cut debt by €900 million in 2015 and €600 in 2016. In case that the company did not meet conditions, it would provide its creditor banks (La Caixa, Santander and HSBC) the option to purchase a 75% stake over Santillana, the books publisher which was the group’s seed in the 60s, currently generating one fourth of its turnover.
As Grupo Prisa’s CEO Juan Luis Cebrián referred to massive redundancies as the “loss” of one third of our staff, now he calls those vulture funds (Silver Point, Monarch Master Funding and CCP Credit Acquisition Holdings Luxco, among others) “specialised funds”. The agreement is the base “for the company’s survival and future development, since it will help to correct the capital structure, provide financial flexibility and improve liquidity while economic situation recovers”, as said by Prisa’s managing team during the General Shareholder Meeting held on December 10th. In October by a Relevant Fact to CNMV’s national supervisor authorities, they however recognised that funds had a very different view of debt profitability and maturity, as well as of the strategy that best suited the company.
“Prisa’s top managers have adopted a very defensive attitude in order to play for time until the crisis recovery occurs. Instead, they would be more proactive and have the capacity to change its business model”, analyst Javier Flores comments at Asinver. “This is a problem that affects the whole Spanish media sector, not only Prisa. Companies should search for a model supported by ideology independance and a concept of investigation journalism”, Flores explains.
Grupo Prisa is the major Spanish media conglomerate. As well as El País, it owns other newspapers such as the economic daily Cinco Días, magazines like Cinemanía or Gentleman, the book publisher Santillana, pay TV plaforms Digital Plus or Media Capital and more of 400 radio stations in Spain and Latin America. However, the company’s real treasure is not inside but in its competitors’ domains. It holds a Mediaset stake of 17.34%, coming from the sale of TV channel Cuatro and 22% of Digital Plus to the Italian group. It still remains a compact group, but due to its many financial needs, it is likely to see in the near future how the company begins to lose gradually some of its parts.
The first asset in the exit ramp is Mediaset, the crown jewel in terms of stock capitalisation. The asset has been the third best Ibex35’s performer in the last twelve months with an increase of 113%, which situates the company’s market price at €3,655 million. Therefore, Prisa’s stake in the Italian values at €633 million, almost three times more than the entire Spanish. The sale would provide the group with hidden reserves amounting around €100 million.
According to advertising investments indicators conducted by Arce Media and Media Hot Line, Mediaset could close year 2014 with an advertising income increase of 1.3%. “Mediaset is a good asset to sell after their shares have increased by 60% in 2013 and considering it prices in a a very optimistic scenario”, Iván San Félix at Renta 4 says.
The sale of Prisa’s stake in Digital Plus is also a question of time. The company still holds a 56%, which presumably will go to the hands of Telefónica. The Spanish blue chip already owns a 22% stake on the pay TV platform. The taking of control over Digital Plus would be used to reorganise its pay TV Telefónica Movistar and promote its launching afterwards. The transaction’s price would near €800 million. And there is still even more. Prisa also controls Media Capital, a Portuguese media conglomerate whose market capitalisation reaches €100 million.
In Javier Flores’ opinion “some Prisa’s assets are viable on their own, but if the managing team does not find the formula to make them profitable, they will not be able to avoid the dismantling”, Flores says.
Regarding El País, the group’s flagship asset, Flores concludes that “its value is unquestionable. It should be used to relaunch the brand but of course changing the model”. Meanwhile, the working environment in the newspaper’s offices is normalising after the bad taste that last year dismissals left in the staff. “We are getting over, but the disappointment with the company was serious. Things will never be the same again”, some journalists at El País say.