RTL NL and Talpa Netwerk to merge

RTL NL to merge with Talpa Netwerk

• Employees: RTL NL 700, Talpa Netwerk (= John de Mol) 960
• Talpa to contribute TV, radio, print, digital, e-commerce, other; not included: content units Talpa Concepts, Talpa Entertainment Producties
• Format creation deal with Talpa Concepts, Talpa Entertainment Producties
• RTL to own 70%, Talpa 30% (i.e. RTL is valued more than 2x Talpa)
• Sven Sauvé remains CEO, Pim Schmitz (CEO Talpa) to Supervisory Board, Elmar Heggen (COO RTL Group) Chair
• 2020 pro forma: rev EUR 909m, EBITA 84m, annuel content spend >400m, annuel synergies 100-120m (EBITA run-rate from 2025)
• RTL NL: rev 476m, EBITA 58m (margin 12.2%)
• Implying for Talpa: rev 433m, EBITA 26m (margin 6.0%)
• To close 22H1
• Quotes:
• RTL: "The new cross-media group will have the size, resources and creativity to compete with global tech platforms in the Netherlands when it comes to investing in premium content, offering the most advanced addressable advertising opportunities, and expanding Videoland (...) gives us the possibility to ramp up investments in content, technology and data to create a competitive and distinguished alternative to global tech players"
• John de Mol: "... able to take on the American and Chinese tech players. On top of that, it allows me to fully focus once again on what I like best: the creation and development of new innovative content"

Observations

• Resembles Liberty Global/Vodafone deals across Europe, creating stronger national competitors. RTL Group may hold a portfolio of joint ventures (Spain, France, Netherlands, Belgium, ...). Unclear whether this is an exit strategy (to focus on Germany) or an operation to create a larger pan-European group.
• Contenders could still take aim at the new company (DPG Media, VodafoneZiggo). Or at either, if the deal fails to materialise.
• Unclear whether synergies from revenues or costs - probably both (from costs alone would imply cutting the workforce in half), more form costs than from revenues.
• Unclear whether some of the linear channels will (longer term) be closed. Considerable overlap exists:
• General: RTL 4, SBS 6
• Female: RTL 5, Net 5
• Male: RTL 7, Veronica
• Reruns (series and movies): RTL 8, SBS 9
• Business: RTL Z
• Cutting linear channels would:
• Save costs
• Reduce ad inventory
• Raise the quality of what remains
• Shift content to Videoland
• Allow linear channels to focus on:
• News, politics, talk shows
• Entertainment, reality, talent shows
• Live sports
• Revenue synergies could arise from an enlarged Videoland (funded by cost savings). Likely Videoland will increase its budget for originals, licensed content and possibly sports (although it may make more sense to keep sports on the linear channels).
• Scrutiny by ACM and EC could be severe (50% of TV ads market).

7 Predictions for 2018 for the Dutch market: consolidation, newcomers and an IPO

1. T-Mobile NL/Tele2 NL a strong #3
This merger seems inevitable. What is more intriguing, is options for creating an even stronger challenger to the KPN/VodafoneZiggo 'duopoly'. Candidates include the M7 Group (Canal Digitaal, Online, Stipte, Fiber NL) and EQT's Dutch assets (Delta, CIF, Caiway).

2. VodafoneZiggo IPO
Greater independence from the 50/50 parent companies would instantly create value. Hundreds of millions of euros are extracted from the company every year.
Alternatively, either Vodafone or Liberty Global could buy out its fellow shareholder, but this seems unlikely. Both are actively trying to get rid of assets in countries where there is no overlap.

3. KPN creating PTT network
KPN will want to be part of a new wave of consolidation. Most multinationals are ruled out, for various reasons (Orange not looking to expand its footprint, Altice not in takeover mood currently, etc). Bloomberg recently suggested Proximus, TDC and Elisa could be partners. In fact, there could be many more in this league (Swisscom, Eir, Telenor).

4. KPN will start losing broadband market share
Leapfrogging is rather predictable. ADSL, Docsis 3.0, VDSL and next .... Docsis 3.1. Once VodafoneZiggo turns on Docsis 3.1, it may herald a new phase of growth. KPN's broadband market share will decline and at some point it may relaunch FTTH and do a number of small takeovers to regain share.

5. Eurofiber to bid in 5G auctions
Eurofiber is actively exploring value-creating innovation. It has an extensive fiber network, connecting anything (including bridges & traffic lights) outside the FTTH segment. A 5G network could be devised as wholesale-only. The company could consider bidding through a consortium with T-Mobile/Tele2.

6. Talpa Netwerk to bid for Eredivisie summaries
John de Mol, having sold part of his assets to ITV, has re-created a wide-ranging media company, Talpa Netwerk (TV, radio, streaming video & music, web, events). It appears as a no-brainer to buy the very valuable Eredivisie summaries for the SBS channels.

7. Subsidisation moving to high-value plans
Operators will start realising that subsidisation (handsets, mobile data, content) may reduce churn but destroys value by offering it to all subscriptions. Vodafone's Passes may be too expensive for the Dutch market, but the concept or providing benefits to high-value plans deserves to be copied.