German media group Bertelsmann has chosen to merge its French television business M6 with its larger domestic rival TF1 after a months-long auction process that attracted bids from Vivendi and Mediaset among others.
But with their choice to enter exclusive talks announced on Monday night, the companies are setting up what is likely to be a difficult antitrust review that could last about 18 months and has no guarantee of success.
Combining broadcaster TF1, which is controlled by French construction-to-telecoms conglomerate Bouygues, with M6 would create a player with roughly 70 per cent of the French television advertising market, far above levels that would usually breach competition rules.
But the companies plan to argue that regulators should instead consider their position in the overall advertising market, including online ads, given how streaming video and the internet have scrambled the dynamics of the market.
If completed, the tie-up would create a new French market leader with €3.4bn in annual revenue and Bouygues as its 30 per cent controlling shareholder.
Thomas Rabe, Bertelsmann boss, told the Financial Times in March that he wanted to use the M6 auction to create a national champion in France even if it meant lobbying authorities to reconsider what he cast as outdated regulatory frameworks to allow consolidation within European markets.
In their joint statement, M6 and TF1 argued that the deal would ensure that they could better compete with the growing clout of streaming video players like Netflix, Amazon, and Disney which have undertaken rapid international expansion in recent years.
“The new group would be well positioned to face the challenges stemming from the intensifying competition from global streaming platforms,” M6 and TF1 said.
“The merger is essential to guarantee the long-term independence of the creation of French content and to be able to keep offering local content that is diversified and high quality, all in the public interest.”
Under the proposal, Bouygues would combine its 44 per cent stake in TF1 with Bertelsmann-owned RTL Group’s 48 per cent stake in M6.
M6 shareholders would receive a €1.50 exceptional dividend in the transaction, according to which 2.1 TF1 shares would be exchanged for each M6 share.
Then Bouygues would pay RTL €641m in cash for 11 per cent of the newly combined entity to take its overall stake to 30 per cent, while RTL would own 16 per cent.
Nicolas de Tavernost, the longtime boss of M6, would serve as the new company’s chief executive, leading a team of executives from both broadcasters. Bouygues would hold four seats on the 12-member board of directors and RTL would hold two.
The owners said they would reap significant cost savings from the merger, which they estimated would add €250m to €350m annually to earnings before interest, taxes and amortisation.
The companies aim to close the deal by the end of next year.