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To: DiViT who wrote (28934)	1/29/1998 4:05:00 PM
From: John Rieman	Respond to of 50808

A digital merger in France????????????????????????? ijumpstart.com French Pay-TV Industry Cheered by City <Picture><Picture><Picture> France's new media law is likely to have a significant impact on the shareholding structure of the country's broadcasting sector and may precipitate a merger between digital rivals Canal Satellite and Television Par Satellite (TPS), according to a report compiled by investment bankers Merrill Lynch. If adopted, the French media law (which includes a provision to reduce the maximum shareholding a non-state owned company may have in a broadcaster from 49 per cent to 30 per cent) would have a major impact on the shareholder base of French broadcasters and is likely to require an end to the exclusive carriage of the public service channels France 2 and France 3 on the TPS platform. Although a 30 per cent threshold would immediately affect only a small percentage of interests, Merrill Lynch's analysts nevertheless believe that it will have important long-term consequences. "We think this law will trigger a vast upheaval of the media," said David Chermont, one of the principal authors of the report. The law could also hasten the merger of rival digital services Canal Satellite and TPS. The end of the exclusivity of the state owned channels on the TPS bouquet will remove at a stroke the principal selling point of the bouquet (the prospect of a merger between TPS and Canal Satellite has been much speculated on in the French media and denied by the relevant companies in recent weeks). It is Chermont's belief that the merger will likely take place at the end of this year or the beginning of next. The French media world is characterised by a complicated mesh of cross-ownership. The principal shareholders in broadcasting organisations primarily are the large public sector service utilities (Generale des Eaux (CGE), Suez Lyonnaise des Eaux and Bouygues) and the Belgian financier Albert Frere. According to Chermont, a likely outcome of the ownership restriction will be the disappearance of Havas. Generale des Eaux could exchange its 30 per cent stake in Havas and 10.2 per cent indirect interest in Canal Plus (through Havas) for a direct 19 per cent stake in a merged Canal Plus-Havas. Merrill Lynch believes CGE long has desired to simplify its relationship with Canal Plus and the law could act as a catalyst for this development. Such a result would, whatever its attractions for a whole host of reasons, nevertheless have a number of disadvantages, including that of removing the attractiveness enjoyed by Canal Plus because of its status as a pure and simple pay-TV operation. CGE chairman Jean-Marie Messier is known to be keen to take a more active role in the broadcasting business, and is believed to have lobbied hard for a merger between Canal Satellite and TPS. Merrill-Lynch's Chermont believes both the disappearance of Havas and the emergence of a single digital platform will be extremely beneficial for the French market. "The entire media sector will benefit," he said. "It's a fixed cost business. There is no benefit from competition. The customer will be much happier with a single platform." This view is in sharp contrast to that taken by rival Morgan Stanley in its report on the French pay-TV market at the end of last year, when it argued that the current situation, with two competing, incompatible platforms is sustainable in view of the overall success of digital pay-TV in France, and may even be desirable from the consumer's point of view. Morgan Stanley predicted that Canal Satellite would break-even by 1999, with TPS reaching the same point one year later. One further probably unintended result of the ownership restrictions envisaged in the new media law could be an influx of new, possibly foreign interests, to take the place of those forced to reduce their stakes. Separately, Merrill Lynch issued a 'buy' note for Canal Plus in anticipation of full year results which it believes should show an estimated loss for 1998 of Fr350 million, (Pounds 35 million) reduced from a previous estimate of Fr560 million. Merrill Lynch analysts believe that Canal Plus will buy back 7 per cent of the 9 per cent stake taken by CGE in Canal Satellite, taking their ownership back up to 70 per cent. In line with its expectation that Canal Satellite and TPS in France will merge sooner rather than later, Merrill Lynch also argues that in Spain Canal Satelite Digital and Via Digital will merge before the year is out, possibly with Canal Plus compensating for diluted control by taking over the stakes of some of the Spanish banks.