BERLIN (Reuters) - ProSiebenSat.1 Media (PSMGn.DE) has staked a $500 million bet on romance by buying U.S. dating app developer Meet Group Inc (MEET.O), but the deal was a turn-off for investors who sent the German broadcaster’s shares down as much as 10% to a decade low.
ProSieben and General Atlantic, the minority partner in its e-commerce joint venture NuCom, jointly offered $6.30 per share in cash for Meet Group in the agreed transaction. Reuters first reported the news late on Wednesday.
The deal, the boldest move yet by CEO Max Conze to escape a downward slide in ProSieben’s core commercial TV franchise, foresees folding Meet Group into NuCom’s own dating business, Parship Group, with a view to a possible listing in 2022.
“The combination...is a unique value-creation opportunity for us,” Conze told Reuters in an interview. “At a stroke you are creating a top-3 global player, while the portfolio has huge synergy potential.”
Yet the deal came as ProSieben reported weak 2019 results and set a cautious outlook that does not yet take into account the coronavirus epidemic that led British peer ITV (ITV.L) to warn of a 10% short-term hit to ad revenues.
Analysts expressed concern that the Meet Group deal and risks to profitability could further strain ProSieben’s capacity to support a debt burden that, at 2.6 times core earnings, is already outside management’s target range.
“This will increase pressure on the group to consider asset sales but at this point there is no mention of it and the Meet acquisition will increase leverage risk in the near-term,” Citi analysts said in a note.
Responding to those concerns, Conze said he took leverage very seriously and he was committed to compensating the cash outflow for Meet Group with other “portfolio movements” during the course of 2020.
Italy’s Mediaset (MS.MI), which has amassed a 15% stake in ProSieben as part of a wider push to bring about broader TV industry consolidation in Europe, declined to comment.
Although ProSieben owns 75% of NuCom and General Atlantic 25%, the Meet Group deal was structured so that ProSieben actually committed less cash than General Atlantic to the takeover.
As a result, ProSieben would own just 55% of the merged dating business - a structure that Conze said reflected caution on how he commits the company’s cash.
The Meet Group transaction is expected to close in the second half of the year, subject to regulatory and shareholder approval, and be accretive to net income in the first year.
ProSieben’s shares have fallen by more than a third over the past 12 months, cutting its market capitalisation to $2.7 billion and raising doubts over whether Conze’s pivot to digital can boost not only the top but also the bottom line.
In another sign of financial strain, management proposed a cut in the 2019 dividend to 0.85 euros, down from 1.19 euros the year before. At Thursday’s share price of 10 euros, that represents a yield of more than 8%.
ProSieben forecast that revenues would grow by 4% this year while adjusted EBITDA would be flat, reflecting the squeeze on profitability from its push into lower-margin digital projects as its commercial TV cash cow declines.
Additional reporting by Elvira Pollina; Editing by Michelle Martin and Jane Merriman