Liberty Acquisition, the US-based special purpose acquisition company, is set to merge with Spanish media group Prisa, the majority owner of satellite TV platform Digital+, in a deal worth US$900m.
Under the terms of the transaction, Prisa will take…
Liberty Acquisition, the US-based special purpose acquisition company, is set to merge with Spanish media group Prisa, the majority owner of satellite TV platform Digital+, in a deal worth US$900m.
Under the terms of the transaction, Prisa will take control of Liberty, gaining access to the shell company’s cash resources, and, in exchange, Liberty shareholders will receive a total of 212.2 million newly-issued Prisa class A ordinary shares and 49 million non-voting convertible shares, both in the form of Prisa American Depository Shares to be traded on the NYSE.
Each Liberty share has been given a targeted value of US$11 per share equating to 1.547 Prisa ordinary shares and 0.358 convertible shares. The convertible shares have a face value of US$10, carry a 7% annual coupon and will be convertible into 1.63 Prisa class A shares at a conversion price of E4.50.
Concurrently, Prisa is to carry out a E150m rights issue reserved for its current minority shareholders.
On completion of both the merger and the rights issue, Liberty’s shareholders will own approximately 49.2% of Prisa (pre-conversion of the convertible shares) and 57.1% (post-conversion). Prisa’s historical majority shareholder, the Polanco family, will see its 70% shareholding, held via holding company Rucandio, fall to 35.6% (pre-conversion) and 30.05% (post-conversion).
This is surprising as throughout Prisa’s recent attempts to reduce its E4.8bn debt burden, the Polanco family has always been extremely reticent to relinquish any control. However, it seems that under the terms of the Liberty merger, the company’s bylaws are to be changed in order that the Polanco family will retain voting control.
On completion, Prisa’s free float will rise from 30% of the company (worth E230m) to 70% (worth E1.26bn). Its market cap will increase from E770m to E1.8bn.
Commenting on the transaction, Prisa’s chief executive officer Juan Luis Cebrián said: “The combination with Liberty will allow Prisa to optimise the deleveraging of its balance sheet, and will facilitate the completion of previously announced asset sales. As a result of the transaction and of the E150m rights issue offered to our current shareholders, Prisa believes it will emerge in a stronger position to pursue growth opportunities in its core businesses in Spanish and Portuguese-speaking markets around the world.”
One of the key closing conditions for the deal centre on the successful restructuring of Prisa’s syndicated and bridge facilities. The Spanish company had already reached an agreement with the lenders of its E1.8bn bridge loan to extend it from March 2010 to May 2013.
According to Liberty, the transaction also facilitates the completion of Prisa’s previously announced stake sales of subsidiaries Digital+, Media Capital and Santillana, which will raise approximately E1.3bn, as well as the equity swap of 100% in Cuatro for an 18.3% stake in Telecinco.
Liberty estimates that combined the merger agreement, rights issue and assets sales will generate approximately E1.96bn in cash. Just over E1.7bn of this will be used to pay down debt, E60m for transaction costs and the remaining E199m will be used to support “future strategic initiatives.” The debt repayment will reduce Prisa’s total leverage from 7.1x to 4.7x total debt to 2010 projected EBITDA.
The deal still requires shareholder approvals at each company, Spanish regulatory approval and the completion of other customary closing conditions. Both parties expect to complete the transaction by June 2010.
Violy & Co is advising Grupo Prisa, with Wachtell, Lipton, Rosen & Katz the company’s US legal counsel and Cortés Abogados its Spanish counsel. Tegris Advisors is providing financial advice to Liberty, with Citigroup and Barclays Capital its capital markets advisers. Greenberg Traurig LLP is US legal counsel for Liberty, while Garrigues is its Spanish counsel.
Liberty’s logic
Central to Liberty’s acquisition strategy is the attractive valuation of Prisa combined with the continued cash flow that it generates.
The shell company said that, based on Prisa’s share price on March 5, the deal price is a 5% discount to the 30-day high, a 21% discount to its 52-week high and an 80% discount to its three-year high. Liberty added that Prisa is currently trading at a discount to its peers on a P/E basis.
Liberty also said that despite the pressures imposed by high leverage and the challenging economic environment, Prisa’s management has generated over E1bn of operating cash flow over the past two years. The SPAC estimates that following Prisa deleveraging, the company should generate enough cash to meet its debt obligations between 2010 and 2012. With no scheduled debt amortisation in 2010, the intention is to create a cash buffer in excess of E400m to support Prisa’s liquidity needs going forward.
The bulk of Prisa’s debt, approximately E2.409bn, amortises in 2013 and Liberty stated that a refinancing of this should be possible as the company’s credit profile improves due to the cash buffer, as well as because of the wider recovery in advertising revenues.
Liberty was also bullish about Prisa’s Latin American prospects. Martin Franklin, Liberty’s chairman, said: “We are confident in Prisa’s potential to increase its digital market penetration, to leverage its print and broadcast content and to accelerate its revenue growth in Latin America.
“We believe that Digital+, the group’s largest asset and the leading provider of pay-TV services in Spain, will become an engine for future growth by capitalising on the recently announced partnerships and embracing exciting new technological advancements.”
Liberty’s CEO Nicolas Berggruen added: “Prisa is a global media company with market-leading businesses and a robust portfolio of brands that are widely recognised by Spanish and Portuguese speakers all around the world. We believe that this combination will help Prisa to complete its financial restructuring plan and position it for growth over the next few years.”
Berggruen knows Prisa well, having sold his shares in Media Capital to the Spanish company in 2006 for US$150m. He had acquired the stake for just US$9m back in 1992. Billionaire Berggruen gained prominence for the fact that he owns neither a house nor a car, lives out of hotels, and has given away most of his possessions.
Both Franklin and Liberty CEO Berggruen have been offered a place on Prisa’s board.
