IFRA

On March 6, the Prisa group of Spain concluded what could be the final chapter in its major financial reorganisation.

Under the terms of an agreement signed with the U.S. Liberty Acquisition Holdings funds, the newspaper company, owned by the Polanco family, will receive about 660 million euros that, combined with the transfer of stock carried out during the last months, will allow Prisa to lower its debts from 5 billion to 3.3 billion euros.

Moreover, at the end of February, the group reached agreement with its creditors to defer repayment of the loan of 1.8 billion euros – which it used to finance the 100-percent takeover bid for Sogecable – from March 2010 to May 2013.

The agreement with Liberty involves a complex operation that will see the U.S. funds disappear completely and become integrated into Prisa, while its shareholders will have the opportunity to acquire 50 percent of the capital of the group, whose management will still remain under the control of the Polanco family. “We are only investors and are not about to become involved in management. Nothing will change,” said Martin Franklin, co-general manager of the funds. Even if the associates of Liberty obtain a majority share of the Prisa capital, they will not overtake the Polanco family in terms of votes, given the introduction of new limitations on voting rights.

The transaction will be conducted in two stages of releasing capital: a non-monetary stage signed up to by the Liberty shareholders, and one of a monetary nature with a preferential subscription right for the current Prisa shareholders and at conditions equivalent to those enjoyed by the Liberty shareholders, at the price of 3.80 euros per share. The agreement requires the approval of the shareholders of both companies as well as of the regulatory authorities concerned.

At the time of going to press, Prisa – hit in late March by the failure of the sale of 35 percent of Media Capital which would have brought 100 million euros – was seeking the approval in writing from its creditor banks of the agreement with Liberty. This is one of the requirements of the U.S. funds for going ahead with the operation. In addition, at least 30 percent of its shareholders must participate in this capital increase.

Ignacio Polanco, chairman of Prisa, said, “This alliance proves that Liberty has firm confidence in our leadership in the area of publishing, newspapers, audiovisual and digital media, as well as in our growth-oriented strategy.

For his part, Juan Luis Cebrián, chairman of the executive committee of the administrative council and general manager of Prisa, said this alliance will take the group to a higher level and strengthen its development in the digital, audiovisual and publishing sectors of the Spanish- and Portuguese-language markets, especially in the USA.”

The transaction will result in a major increase in the liquidity of Prisa stock, because of an increase in its floating capital (“free float”) that will be traded both on the Spanish market and in the USA via ADRs (American Depositary Receipts).

The agreement has not yet convinced the stock market, where the group’s stock lost seven percent in the days after the announcement. Analysts attributed the market’s reaction to the complexity of the transaction and to the fact that the Polanco family will not suffer any loss in this operation.

Another unknown is whether the capital injection by Liberty will be sufficient to cover Prisa’s debt, given that some investors saw the transaction as a last-minute operation to rescue the group from its difficult situation. Some also regard Liberty as a purely speculative funds with no real interest in the media sector.

Aiming to dispel that view, Nicolas Berggruen, the other general manager of Liberty, told the Spanish news agency EFE, “It is in difficult times that you must invest, because it is when everyone is afraid that the best opportunities arise” in the sector.

Berggruen argued that the advantage of Prisa is that it will continue to be active despite the perennial crisis. Its newspaper El País will continue to be the leading title in Spain, he said. In addition, the group has valuable activities in other areas, such as the Latin American publishing sector with Santillana and the Caracol group in Colombia, of which it holds 19 percent, as well as the Grupo Latino de Radiodifusión, which runs 300 radio stations in Brazil, Chile, Colombia, Costa Rica, Mexico, Panama and the USA.

After the Liberty transaction, the Prisa group hopes to reach a profit in 2010 of between 152 and 190 million euros, according to El País. Those figures presuppose a tripling of the net result of 50.5 million euros achieved in 2009. The forecast for 2011 puts profits at between 188 and 259 million euros.