Game of armchairs

Berlusconi, Bollore, Murdoch lock horns: who wins?

Who wins when three billionaires lock horns? A Euro 720-million deal in Italy's pay-TV sector stars three big moguls: Vivendi's Vincent Bollore, Sky's Rupert Murdoch and Mediaset's Silvio Berlusconi. Italy's former prime minister may have come off best.

Berlusconi is selling his Mediaset Premium business to French conglomerate Vivendi, in a convoluted transaction. Rather than pay cash, the two companies are swapping an equal proportion of shares equivalent to 3.5 per cent in each group. Mediaset will make up for the fact Vivendi is bigger by throwing in Premium, which the deal implicitly values at Euro 720 million.

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This is all part of Vivendi's nebulous strategy of creating a Southern European media and content powerhouse. It may give Bollore more content to sell through Telecom Italia, which Vivendi controls. Consolidation has been long expected in the stagnant Italian pay-TV market, which is dominated by Sky and smaller Mediaset, with relatively low pay-TV penetration. Using shares may be a sign Vivendi wants to keep its cash for bigger deals.

But there are few obvious economic benefits of bringing together national businesses like Premium with Vivendi's Canal Plus. Sports rights are negotiated nationally and subscribers want mostly local content or global shows churned out by the likes of HBO or Netflix. Vivendi shareholders will also increase their exposure to Italy's dismal economy and volatile politics. At least they are not paying much: Bernstein estimated last year that Premium could be worth more than this transaction implies: as much as Euro 900 million.

The deal will make life harder for Sky, which currently provides content to Telecom Italia. A beefed-up Premium could compete more aggressively for content like sports rights. That might be why Sky reportedly bid for Premium itself, unsuccessfully, last year.

Berlusconi emerges from the whole thing in good shape. True, Mediaset is getting Vivendi's highly rated stock, not cash. But cutting exposure to a loss-making, competitively challenged business makes sense. Premium made less revenue in the nine months to September than five years ago. Vivendi can't buy more than five per cent of Mediaset for three years, but the deal has sparked speculation it could buy all of it, pushing up Mediaset stock five per cent on April 8, and Berlusconi's stake by over Euro 80 million. Niente male.