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Mexico’s Televisa offers to combine pay TV unit with Megacable

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MEXICO CITY — Mexican broadcaster Grupo Televisa is offering to merge its cable and broadband unit Izzi with smaller rival Megacable , according to Televisa’s offer letter which was reviewed by Reuters.

Megacable has not yet accepted the deal, said a source with knowledge of the matter who provided the copy of the offer letter.

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The stock-for-stock deal between the companies would result in Megacable’s shareholders owning about 45% of the merged company with Televisa at about 55%, the letter dated Nov. 14 said.

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The results of that transaction places a premium on Megacable 19% higher than Televisa’s cable business Izzi using a valuation metric that compares the earnings before interest, taxes, depreciation, and amortization (EBITDA) over the last 12 months, starting with third quarter results, of the two companies, according to the letter.

Additionally, Televisa would offer Megacable shareholders a 14.8 billion peso ($744.94 million) special dividend at the deal’s close that would either be financed by third-party lenders or its own cash on hand, the letter said.

Megacable would remain publicly listed as the entity surviving the merger, the offer letter said.

Megacable, which provides pay TV, internet and telephone services in Mexico, has a market capitalization of 42.60 billion pesos ($2.14 billion), according to Refinitiv data.

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Televisa’s offer comes after a series of spinoffs by major Mexican companies to revive depressed stock prices. Televisa pitched a plan in October to spin off its sports and gaming operations, saying the move would cut corporate expenses.

The new Megacable could end up with up to 40 billion pesos in new debt, part coming from Televisa and part being used to fund the special dividend, but Televisa said the combined company’s net leverage will be 1.5 times its annualized EBITDA based on third quarter results, which it said was below industry peers.

The combined company would have revenue of 75 billion pesos based on the companies’ results in the 12-month period ending Sept. 30, Televisa’s offer said.

“It is in the process of deliberation,” said the source, speaking of Megacable’s consideration of the offer.

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Representatives for Megacable and Televisa did not immediately respond to a request for comment.

Televisa claimed more than 62% of the pay TV market in 2021, while Megacable had about 21%, according to data from telecoms regulator the IFT.

Televisa’s letter said the combination would create “one of Mexico’s leading cable operators, better positioned to compete than either one of us alone.”

It was unclear whether the combination would face antitrust scrutiny.

In October, Megacable said it will invest $2 billion over the next five years to expand its network and grow to new cities. It had expanded to 11 cities so far this year and aimed to hit 15 more by the end of the year. ($1 = 19.8674 Mexican pesos) (Reporting by Cassandra Garrison; editing by Christian Plumb and Christian Schmollinger)

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