ProSiebenSat.1 Merger Arbitrage, Limited Risk, Modest Premium

2025-02-14 08:00:00 ET

Summary

• ProSiebenSat.1's unique ventures in dating and e-commerce differentiate it from European peers, but it lacks strong dividends and market leadership.
• Media For Europe's 26.5% stake in ProSiebenSat.1 and potential takeover bid could offer a premium, despite current investment challenges.
• ProSiebenSat.1's non-leading position in Germany and shareholder turmoil contrast with the stability, set direction and higher dividends of competitors like RTL Group, Atresmedia and TF1.
• The potential takeover by Media For Europe remains the primary speculative upside for ProSiebenSat.1, making it a "hold".

The Thing With ProSiebenSat.1

ProSiebenSat.1 ( OTCPK:PBSFF ; OTCPK:PBSFY ) is different. The thing is, the company is a European broadcaster like any other, but it's just not the same if you take a look at their business. The difference is not in the broadcasting operations, which are very similar to the operations of the European peers, like RTL Group ( OTCPK:RGLXF ) ( OTCPK:RGLXY ) in Germany, ITV ( OTCPK:ITVPY ) ( OTCPK:ITVPF ) in the UK, TF1 ( OTCPK:TVFCF ) in France and Atresmedia ( OTCPK:AIOSF ) ( OTCPK:ATVDY ) in Spain. The difference is in what goes on outside the broadcasting operations. Here's some examples:

• ProSiebenSat.1 has a significant business from dating and e-commerce, roughly one third of the revenue, outside the core broadcasting activities. So, on the one hand, the company broadcasts the "Pro7" channel and provides streaming services via the "Joyn" platform, which is similar as with the other broadcasters with each their own TV channels and streaming services. On the other hand, ProSiebenSat.1 is trying to sell goods online and have people sign up to their online dating service. These are activities that none of the other mentioned broadcasters have.
• Next, ProSiebenSat.1 is not the leading commercial broadcaster in their home market. This is RTL Group in Germany, which is bigger than ProSiebenSat.1 by a substantial margin. The other broadcasters, mentioned above, all have a leading position in their respective home markets. A leading position in the home market is important, because it means they can offer a superior reach for their advertisers. ProSiebenSat.1 doesn't have the leading position, so there's a constant challenge to find revenue growth through advertising. This may have been one reason why the company went into the more exotic ventures, such as dating and e-commerce.
• Next, as a third big difference, ProSiebenSat.1, only pays a very small dividend of 0.05 euro per share annually. This equates to a yield of less than 1%. The other mentioned broadcasters are all strong dividend payers with yields of 7.5% or higher, sometimes reaching over 10%. This difference would probably make any investor scratch his head when asked if ProSiebenSat.1 is the better pick. Dividend may not be the only part of the return on an investment, but the Atresmedia and RTL Group's ~10% dividend yield is such a difference with ProSiebenSat.1's yield that it's hard to overlook.
• Finally, ProSiebenSat.1 has uncertainty around ownership. The company has been a takeover target for years, sometimes with the accompanying turmoil in the upper regions in the company. The Italian broadcaster " Media for Europe " (listed in Italy under the ticker "MFE"), which is run by the Berlusconi family, has been aiming to increase control over ProSiebenSat.1 since at least mid 2019 . The stake that Media for Europe has in ProSiebenSat.1 is now near 30% of the shares and it's no secret that they're looking to expand that to a majority stake. The dynamics around this potential takeover make ProSiebenSat.1 different from the other European broadcasters, who generally have had stable majority owners for years. Their ownership situation is often so stable that one may wonder if it could ever change. This stability comes with a set strategic direction, without any turmoil like in ProSiebenSat.1. Some examples are RTL Group that has been ~75% owned by Bertelsmann for a long time, TF1 that has Bouygtel ( OTCPK:BOUYF , OTCPK:BOUYY ) as a supportive owner and Atresmedia that has Grupo Planeta and RTL Group as ~70% owners of the company.

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