Bloomberg News

RCS Shares Rise After Purchase of Spain's Recoletos

February 08, 2007

Shares of RCS MediaGroup SpA (RCS) rose to their highest in eight months after the owner of Italy's largest daily agreed to buy Recoletos Grupo de Comunicacion SA to gain Marca and Expansion, Spain's biggest sports and financial newspapers.

RSC shares added 5.6 cents, or 1.3 percent, to 4.3 euros in Milan, the highest closing price since June 5. The gain left the publisher with a market value of 3.23 billion euros ($4.2 billon). The stock rose 4.9 percent yesterday.

Milan-based RCS agreed to pay about 828 million euros for Recoletos. It will also assume the Spanish company's net debt, which totaled 272 million euros at the end of 2006. RCS said it plans to use cash and an existing credit line to finance the acquisition of Madrid-based Recoletos.

``The deal addresses two specific weaknesses of the stock: unclear strategy and inefficient capital structure, and makes strategic sense strengthening RCS in Spain,'' analyst Valentina Romitelli at UBS AG in Milan wrote in a note. ``Most of the premium paid will be supported by the potential synergies RCS should exploit by actually doubling the size of its Spanish business.''

Romitelli raised her recommendation on RCS's stock to ``buy'' from ``neutral'' and increased the target price by 23 percent to 4.90 euros. Deutsche Bank AG analyst Alessandro Baj Badino increased the price estimate by 15 percent to 5.3 euros. He has a ``buy'' rating on the stock.

The Italian publisher already controls Unedisa Group, publisher of El Mundo, Spain's second-biggest general news daily after El Pais.

In September, RCS named Antonello Perricone as chief executive officer to replace Vittorio Colao, who quit after two years at the head of the company. Perricone is seeking to increase sales of the group's biggest newspapers, Corriere della Sera and Gazzetta dello Sport, and expand the company abroad.

``The market perceives very positively the fact that RCS is looking abroad because in the past the company has focused too much on building up capital,'' said Salvatore Provinzano, an analyst at IlNuovoMercato in Rome.

RCS also owns French publisher Flammarion and a U.K.-based editor of serial publications.

To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net

To contact the editor for this story: Zimri Smith at zsmith@bloomberg.net


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