TheChek News Flow

- Expects BOJ to ease further

Vincent Bolloré’s deal to take a stake in the TV group of Italian media mogul and former prime minister Silvio Berlusconi will cause a wave of consolidation in the European media industry and pit the French corporate raider against Rupert Murdoch, say media executives, bankers and analysts.

The Vivendi media group in which Mr Bolloré is the main shareholder agreed on Friday to take a 3.5 per cent stake in Mediaset, Italy’s largest private broadcaster owned by Mr Berlusconi, as well as taking full control of Mediaset’s pay-TV business.

The deal, which was drawn up in the past two months, according to insiders, creates a southern European media group covering France, Italy and Spain and is billed as a powerhouse able to take on increasing pressure from US such as Netflix. It also boosts Mr Bollore’s presence in Italy where Vivendi is the biggest shareholder in Telecom Italia.

But in buying Mediaset’s pay-TV business the agreement also ratchets up competition with Mr Murdoch’s Sky empire which last year united its business across the UK, Italy, Germany, Ireland and Austria under a single group, say media industry experts.

The deal should be seen as “the starting gun of a drive for consolidation of media across Europe,” said one senior industry source. Bankers on the deal and media executives also suggested Mr Bolloré could seek to snap up other assets on the back of Mediaset deal. ITV in the UK and ProSiebenSat. 1 are seen as other potential targets, they said.

Piersilvio Berlusconi, eldest son of Mr Berlusconi from his first marriage, indicated that Mediaset had opted for the Vivendi offer over one from Sky. The deal implies a value for Mediaset Premium of €735m, far greater than analyst estimates of about €500m. It also allows Mr Berlusconi to step out of the annual costly battle for pay-TV football rights which Mediaset, which has suffered from declining advertising during Italy’s long recession, could ill-afford.

“We had an offer from a satellite rival of [Mediaset] Premium, but in terms of strategic opportunity this is the much, much better option,” said Mr Berlusconi adding his father and Mr Bolloré had “a friendship going back years”. Mr Berlusconi added that the cross-shareholding with Vivendi was “forever”.

Still, a “lock up” clause in the deal banning Mr Bolloré from buying more than 5 per cent of Mediaset shares for the next three years has raised speculation the French tycoon could seek to purchase the rest of Mediaset after 2019. Italy is due to hold national elections in 2018 and people familiar with Mr Berlusconi say he would want to maintain control of his media interests, which he has adeptly used to further his political clout, until after the national vote.

“Buying Mediaset would not only give Vivendi a presence in the Italian TV advertising market but also in Spain, given Mediaset’s majority stake in Mediaset Espana,” analysts at Liberum said in a note before the deal announcement.

“I would assume this is part of a bigger game to buy Mediaset, sell Telecom Italia [to raise funds to buy Mediaset] and go after Murdoch,” said one senior media industry source.

Where is the spice ?

• The CA share has already given back 27% from last September €32.00 high, reflecting well-flagged worries over French and Chinese business trends

• The growing involvement of the above-mentioned experts :

- demonstrates their confidence in business & valuation outlook

- bring to the table valuable expertise and connections in a fast-changing world

• The materialization of 3 IPO projects -France ,Brazil and Turkey- would also help recapturing market attention

• The stock would be a natural winner of a potential “post-Rousseff rally” ,as the group is the “leader in Brazil grocery retail” with a business :

- representing ≈ 15% of worldwide revenues

- remaining spectacularly dynamic despite currently-adverse macro conditions

With the equity story in European oil services being so unattractive, we look at the make up of the US$55bn EV of the sector, considerably higher than the US$32bn market cap. We conclude that even after the much needed equity raises by CGG and Saipem, we calculate US$12bn of additional equity still needs to be raised to sort out balance sheets, equivalent to a c.40% uplift to the current market cap of the sector.

To reach US$12bn we apply 2.0x net debt/EBITDA on our 2016 forecasts, a very simplistic approach. The outputs return an implied capital shortfall of US$8bn if the multiple is raised to 3.0x. In any event, it appears that there is severe pressure on companies to rein in the amount of debt on their balance sheets, and having seen two concluded raises, EUR350m at CGG and EUR3.5bn at Saipem, more companies will likely follow. There are few alternatives, such as disposals, in this environment as the oil services sector moves through the “path of pain”.

It is unsurprising the overwhelming outlier is Seadrill, where the equity is US$1.5bn and the EV is US$11bn. The company has committed to deciding on a restructuring plan during 2Q16, and on our analysis, using 3.0x net debt/EBITDA, the implied capital shortfall is US$4bn. Next in line is Vallourec, which are in the process now of raising EUR1bn of fresh capital, which includes a EUR485m rights issue. On the other end of the scale, Subsea 7, Tecnicas and Lamprell have the most healthy balance sheets.

Our comprehensive analysis of the sector’s balance sheet shows a collection of bonds, credit lines and bank loans. It is worth noting that for a sector with so much debt, it does not appear to be a general requirement to have a credit rating to win and execute multi billion contracts. Whilst Petrofac (BBB), Technip (BBB+) and Saipem ((P) BBB-) are

investment grade, we do not see the other European oil services companies running their balance sheet with an aspiration to achieve investment grade.

We again reiterated our negative sector view in Feeling the pain and our oil industry capex forecasts keep falling (Capex crunch continues with 16% cut in 16E). The outlook may still offer more downside, and given the track record of the sector, consensus forecasts for revenue and margin capture may be optimistic and in turn could put more

pressure on to balance sheets. As things stand now, we believe the equity raises announced/executed by CGG, PGS and Vallourec may not be enough, and that further measures may need to be taken.

Nikkei -0.42% Hang Seng +0.36% Shanghai +1.93%

Eur$1.1414 CNH 6.4770 CNY 6.4670 JPY 107.92 GBP 1.4127 CHF 0.9529 RUB$ 66.8128 WTI$ 39.58 (-0.35%)

S&P -0.04% EuroStoxx -0.03% Dax -0.08% CAC -0.17% SMI +0.21%

*ANGLOGOLD ASHANTI RAISED TO OUTPERFORM VS SECTOR PERFORM AT RBC

*MEDIASET RAISED TO BUY AT HSBC

*SCHRODERS RAISED TO BUY VS HOLD AT JEFFERIES

>>> Down

*AGGREKO CUT TO SELL VS NEUTRAL AT UBS

*ARC RESOURCES CUT TO MARKET PERFORM VS OUTPERFORM AT BMO

*ASHMORE CUT TO HOLD VS BUY AT JEFFERIES

*DIRECT LINE CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS

*FRESNILLO CUT TO UNDERPERFORM VS SECTOR PERFORM AT RBC

*GEMALTO CUT TO UNDERPERFORM VS NEUTRAL AT CREDIT SUISSE

*PORSCHE CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS

*YARA CUT TO REDUCE VS HOLD AT HSBC

>>> PT Change

>>> Initiation

*AUTONATION RATED NEW HOLD AT JEFFERIES

*BHP BILLITON RATED NEUTRAL AT NOMURA

*FRESENIUS SE RATED NEW OUTPERFORM AT BERNSTEIN

*VTG REINITIATED BUY AT BANKHAUS LAMPE, PT EU34

>>> Call