Bloomberg News

Goldman, Berlusconi Set to Lose Endemol Bet: Corporate Finance

July 01, 2011

July 1 (Bloomberg) -- Endemol NV investors including Goldman Sachs Group Inc. are facing losses of more than 60 percent in their investments as the Dutch producer of the “Big Brother” television show reorganizes 2.8 billion euros ($4.1 billion) of debt amid the Greek crisis.

Endemol’s enterprise value has fallen to no more than 1.2 billion euros from 3.1 billion euros four years ago, with its equity and junior debt becoming worthless, said two people with knowledge of the situation who declined to be identified because talks with creditors are confidential.

Shareholders including Italian Prime Minister Silvio Berlusconi’s Mediaset SpA and Goldman Sachs are in negotiations with lenders complicated by last week’s departure of Chief Executive Officer Ynon Kreiz amid disagreements over Amsterdam- based Endemol’s strategy. Concerns that Greece will default on its debt and the slowing economic recovery have pushed up funding costs as investors shun risky assets.

“The market is already discounting the breach of the covenants,” said Saverio Papagno, an analyst at AZ Fund Management in Luxembourg. “All the options on the table right now, including a debt-for-equity swap.”

Endemol, the world’s largest independent TV producer, said in its 2010 annual report that widening losses would cause the company to breach its loan covenants. Marco Giordani, Mediaset’s chief financial officer, said yesterday that the results of a test on the latest debt ratios would be available in 45 days. Los Angeles-based investment bank Houlihan Lokey is advising Endemol on the reorganization.

‘Pre-Crisis World’

Mediaset, Mediaset Espana Comunicacion SA, Goldman Sachs and Cyrte Fund II BV, under an investment company founded by John de Mol, bought Endemol in 2007 using 2.8 billion euros of leveraged loans, including 325 million euros of mezzanine debt, according to data compiled by Bloomberg.

“Going back I don’t think we would pay that price again, which was paid in a different, pre-crisis world,” Mediaset Vice Chairman Pier Silvio Berlusconi, the prime minister’s eldest son, said near Milan yesterday.

Endemol’s 1.8 billion-euro senior loans are quoted at 56.7 percent of face value, down from 70.8 percent at the beginning of the year, according to data provider Markit Group Ltd.

In his three years as CEO, Kreiz cut costs at the TV producer and made acquisitions such as Tiger Aspect and Darlow Smithson in the U.K. and Authentic Entertainment in the U.S. Yet without a hit format on the scale of “Big Brother,” Endemol is unprofitable.

Debt Ratios

Net loss widened to 1.29 billion euros last year from 345 million euros as Endemol wrote down the value of units to reflect a slower economic recovery, according to its annual report. Revenue gained 4.7 percent to 1.25 billion euros.

At the end of 2010, Endemol’s debt was 5.6 times its earnings before interest, taxes, depreciation and amortization, according to its annual report, which showed 2010 Ebitda of 393.8 million euros. This year, Ebitda may be about 150 million euros, Pier Silvio Berlusconi said yesterday.

“Big Brother” continues to register top audience ratings in countries such as the U.S., Italy and Germany, maintaining its position as Endemol’s leading format. Other productions include “Who Wants to Be a Millionaire?” and “Deal or no Deal.”

“Old war horses like the ‘Big Brother’ are still strong, but they also need new, successful shows,” said Oriana Cardani, an analyst in Milan at Centrobanca SpA.

Share Writedowns

Mediaset and its Spanish unit have written down shares in Endemol to zero. Delta Lloyd Group, which owns 10.5 percent in Cyrte Fund II, has written down its assets in Endemol to 10.5 million euros in 2010 from 256.1 million euros a year earlier, according to its annual report.

Endemol’s current enterprise value may be as low as 800 million euros, according to the people familiar with the matter.

Joanna Carss, a Goldman Sachs spokeswoman in London, and Endemol’s press office referred requests for comment to Charlie Armitstead, a spokesman for Endemol at Financial Dynamics.

Management is in talks with lenders to reorganize the capital structure, and no proposal has been put on the table yet, Armitstead told Bloomberg News. He declined to comment on valuations and said Endemol is on track to meet its 2011 financial targets.

Barclays Capital, one of the leaders of the syndicate of lenders, also declined to comment on the talks.

Creativity Drain

Kreiz was only the latest key executive to have left Endemol. In September, Paul Romer, who helped create the “Big Brother” format with De Mol, stepped down as chief creative officer, leaving the company after 15 years.

Companies with a major TV production business that can have synergies with Endemol, such as ITV Plc and RTL Group SA, or companies with a significant content distribution business such as Rupert Murdoch’s News Corp. may be interested in buying Endemol, said Claudio Aspesi, an analyst at Sanford C. Bernstein in London. Officials at the three companies declined to comment.

“The issue is debt,” Pier Silvio Berlusconi said. “Endemol has been managed with a financial approach. To remain we would like to play an industrial role, so far we haven’t been able to do so.”

--With assistance from Jonathan Browning and Simon Thiel in London. Editors: Kenneth Wong, Faris Khan

To contact the reporters on this story: Patricia Kuo in London at; Chiara Remondini in Milan at; Maaike Noordhuis in Amsterdam at

To contact the editors responsible for this story: Faris Khan at; Kenneth Wong at;

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