Italy masts M&A looms as government moves to cut Rai Way stake – sources

Industry:    2022-03-08

Prime Minister Mario Draghi has approved a decree allowing Italy’s state broadcaster RAI to cut its holding in towers unit Rai Way below 51%, three government officials said, in a move expected to trigger sector consolidation.

The decree could pave the way for merger talks between Rai Way and EI Towers, the officials said, a long-mooted tie-up that would create a group worth more than 2 billion euros ($2.2 billion) in the television and radio mast sector.

Rome is reversing a provision made in 2014, when Italy ruled that at least 51% of Rai Way should remain in public ownership due to the strategic importance of its infrastructure.

The decree needs approval from Italy’s audit court before it can enter into force, the sources told Reuters.

EI Towers launched a takeover bid for Rai Way in 2015, but this was thwarted by the centre-left coalition government of former Prime Minister Matteo Renzi.

At that time, former conservative Prime Minister Silvio Berlusconi’s family-controlled EI Towers through broadcaster Mediaset and Renzi did not want to see the media magnate take control of Rai Way’s assets.

“Had it been done then, there could have been synergies on investments to repurpose spectrum bands,” Equita SIM senior analyst Stefano Gamberini said.

“But a tie-up would still create a more profitable player with greater cash generation capacity.”

RAI holds 65% of Rai Way, while EI Towers is now 60% controlled by fund F2i and 40% owned by MediaForEurope (MFE), which is Mediaset’s new name.

The book value of MFE’s 40% stake in unlisted EI Towers is around 437 million euros, based on MFE’s 2020 financial statements, implying an overall valuation of EI Towers at more than 1 billion euros.

Listed in 2014, Rai Way has a market capitalisation of approximately 1.3 billion euros.

Gamberini said Rai Way’s very low debt burden, currently in line with its core profit, would rise in a tie-up with EI Towers but still leave room for an extraordinary dividend Equita estimated could top 1 euros per share.

RAI has traditionally been subject to political influence and the potential merger of its towers arm with a private player is opposed by several ruling politicians.

Michele Anzaldi, a lawmaker in Renzi’s Italia Viva party and member of an influential parliamentary committee supervising the state broadcaster, told Reuters the government’s move was “a grave measure, taken without any transparency on what this extra cash in RAI’s coffers will be used for.”

According to one of the sources, governance agreements between RAI and the shareholders of Rai Way’s prospective merger partner will ensure Italian strategic interests in any deal.

Draghi’s office, RAI and F2i declined to comment. Rai Way, EI Towers and MFE were not immediately available for comment.

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