BERLIN (Reuters) – ProSiebenSat.1 Media (PSMGn.DE) has staked a $500 million bet on romance by buying dating U.S. app developer Meet Group Inc (MEET.O), but the deal proved to be a turn-off for investors who sent the German broadcaster’s shares down 10% to a decade low.
ProSieben and General Atlantic, the minority partner in its e-commerce joint venture NuCom, jointly offered $6.30 per share in cash for Meet Group in the agreed transaction. Reuters first reported the news late on Wednesday, lifting Meet Group’s shares by 23% to close at $6.82.
The deal represents the boldest move yet by CEO Max Conze to escape a downward slide in ProSieben’s core commercial TV franchise by achieving double-digit growth in digital advertising, content production and e-commerce.
“It will significantly advance our ambition to create one of the leading global players in online dating and interactive live video,” Conze said in a statement.
Although General Atlantic is 25% partner in NuCom, the deal will be structured to merge Meet Group with the e-commerce venture’s existing dating business, Parship Group, with a view to a possible listing in 2022.
ProSieben will contribute 209 million euros ($232 million) and General Atlantic 276 million euros in cash for Meet Group. ProSieben would own 55% and General Atlantic 45% of the combined entity.
The Meet Group transaction is expected to close in the second half of the year, subject to regulatory and shareholder approval, and be accretive to net income in the first year.
News of the deal came as Munich-based ProSieben reported lackluster 2019 results in which revenue growth and core profit margins both came in short of its previous guidance, as pressure grew from streaming rivals led by Netflix (NFLX.O).
ProSieben’s shares have fallen by more than a third over the past 12 months, cutting its market capitalization to $2.7 billion and raising doubts over whether Conze’s pivot to digital can boost not only the top but also the bottom line.
That makes the cash deal to buy Meet Group at an enterprise value of 12.8 times core earnings a stretch for ProSieben, which will add more than 200 million euros in debt to its already extended balance sheet to pay its share. I
In another sign of financial strain, management proposed a cut in the 2019 dividend to 0.85 euros, down from 1.19 euros the year before. At Thursday’s share price of below 10 euros, that represents a yield of more than 8%.
ProSieben forecast that revenues would grow by 4% this year while adjusted EBITDA would be flat, reflecting the squeeze on profitability from its push into lower-margin digital projects as its commercial TV cash cow declines.
Reporting by Douglas Busvine; Editing by Michelle Martin and Jane Merriman