Analysis: Prisa: Its Past & Its Future (Part 2)

Last week, we took a look at the history of Spanish media group Prisa, which has a strong presence in Latin America and the U.S. Hispanic market. We covered the company’s history from its inception in the seventies through 2004. In this week’s column, we describe the last six tumultuous years of Prisa’s history. The last few years provide interesting insights into the group’s situation and explain why it has set its expansion sights on the U.S. Hispanic and Latin American markets.

Internationalization

During the nineties and the following decade, Prisa bought stakes in several European media groups (Media Capital, Portugal; Le Monde and Presseurope, France) and also concentrated on Latin America, a natural market for its expansion, where the group’s publishing concerns were already well known and where it he was making strategic investments. For example, through its radio broadcasting group Union Radio, the company has investments in Argentina (Radio Continental and Los 40 Principales), Bolivia (El Nuevo Dia, Extra and La Razon), Chile (Iberoamericana Radio Chile), Colombia (Caracol Radio), and Mexico (50% of Televisa Radio), and also controls programming in Costa Rica, Ecuador and Panama.

In the United States, Prisa owns W Radio Los Angeles, part of the GLR Networks, and Caracol Miami. It also owns 12% of V-me, a Spanish-language television network targeting the Hispanic market, where it aims to become a majority stakeholder.

Debt…

By 2006, the group appeared stabilized and was growing. So much so, that its board decided to purchase the shares it did not already own in its Sogecable subsidiary, thereby initiating a process that led to its exclusion takeover bid in 2007.  Shortly after completing the takeover, which left Prisa severely indebted, Editor Jesus de Polanco died, leaving several relatives in key positions within the company.  However, the group remained mainly in control of then CEO Juan Luis Cebrian.  Rumors of internal fighting in Madrid between two groups – one led by Cebrian and the other by the Polanco family – had been commonplace for years, but escalated after Polanco’s death.

Then in 2008, with the outbreak of the subprime mortgage crisis in the U.S., the group’s financial situation – already tight after its acquisition of Sogecable – became even more precarious.

…and Divestment

Throughout 2008 and 2009, the group suffered severe losses as a result of reduced advertising revenues and high financial costs related to its debt. In 2008 alone, Prisa’s stock price plunged more than 80% and profits fell by 60%. Forced to divest itself of some of its holdings, the group sold real estate properties (including its flagship building on Madrid’s Gran Via) and sought a buyer for Digital+, its Pay TV subsidiary, in which Telefonica finally acquired a 20% stake.

In late 2009, Prisa also sold another 22% of Digital+ to Telecinco, owned by Italy's Mediaset (Berlusconi), for $75 million in cash. In another deal, Canal Cuatro (Sogecable’s free channel), was also folded into Telecinco, although Telecinco and Cuatro kept their brands separate.

Despite these divestitures, the group’s finances kept worsening in the midst of the general economic crisis – which had and continues to have a deep impact on Spain – and rumors began to circulate about a possible Prisa bankruptcy. The company’s only positive news during this time came from Latin America and the United States, where its revenues were growing at a rate of more than 11% and compensated – although by no means entirely – Prisa’s fall in EBITDA (Earnings before interest, taxes, depreciation and amortization).

Rumors abounded that even publishing house Santillana, one of its most profitable companies, was up for sale.

Liberty Enters the Picture

Everything changed in March 2010, when Prisa announced that it had reached an agreement with the Liberty Investment Group for a capital infusion of more than 900 million euros, which also included a complex debt restructuring and a complete change of its shareholder structure.

The deal, renegotiated all throughout the summer as a result of the deepening crisis, severely diluted the Polanco family’s shares in the company, reducing their stake from more than 70% to less than 30%, most of which were conceded to Liberty.

The investment group has stated that it is not interested in managing the group and considers its participation as purely financial, but its hand has nevertheless already been felt in certain appointments.  And Juan Luis Cebrian, the group’s factotum, has announced that the deal includes his departure as CEO in 2013.  In practice, the deal means that Prisa will go from being a family-owned business to a multinational company listed on Wall Street, and managed according to profit-oriented financial criteria.  The agreement will slash the group’s vast mountain of accumulated debt from over 4.300 billion Euros to less than 2 billion Euros.

Prisa’s strategic priorities will be given a new direction: Cebrian has announced a new focus on the U.S. Hispanic market, which is considered especially interesting because of its high level of available income.  No changes are expected, however, in the ideological orientation of its cornerstone property – the flagship publication El Pais – mainly because, despite market difficulties, the paper continues to be profitable even if its financial take makes up an insignificant part of group’s bottom line, now dominated by its textbooks and satellite television businesses. 

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Analysis: What is Prisa’s New Strategy after Cutting Back its TV Assets?

 

 

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