Over the past seven years, Spain’s largest communications group, which had become a giant in the cultural industries in Latin America, has gone through the worst period in its history…
Patricia Marenghi* and Marina Hernández Prieto**/ Spain, July 2014
In July 2007, Jesús Polanco died at the age of 77. Three years later, his friend and co-founder of Santillana, Pancho Pérez González, also died. Over the past seven years, Spain’s largest communications group, which had become a giant in the cultural industries in Latin America, has gone through the worst period in its history.
PRISA emerged as the multimedia diversification of Editorial Santillana, the project that had allowed Pancho Pérez González and Jesús de Polanco to generate an important base in the textbook business in Spain and Latin America in the 1960s and 1970s. When various circles of companies were launched to create new newspapers for the political transition from Francoism, Pérez and Polanco joined the newspaper El País, which hit the streets in May 1976. Over time, Polanco and Pérez picked up small packages of stocks until they became the most important shareholders at the newspaper. From there, they made the leap to radio with the purchase of the majority of the capital of Cadena SER, the most important radio group in Spain in 1985. They later obtained one of three private TV licenses in 1990 in collaboration with the French group Canal Plus.
The expansion of FM licenses would solidify the leadership of the group in the Spanish radio market during the 1990s. Its position in the pay TV market –which was basically non-existent in Spain until 1990- allowed it to break into the sports and movie rights market and launch a multichannel via satellite, Canal Satélite Digital, which would merge with another major operator to create what is now Canal Plus, the largest pay TV operator in Spain with the satellite bouquet.
The private TV license –used during the early years to provide pay TV, replicating the French model- became a commercial channel called Cuatro in late 2005. At the time, the group’s expansion had hit its peak in Spain and Latin America. The delay in cable had allowed Canal Plus to lead the pay market. The diversification of radio formats in Spain allowed the group to consolidate its hegemony in that sector. El País continued to be the country’s most widely read newspaper. Grupo Santillana and its publishing companies shared leadership of the publishing market with Planeta. Overall, the growth of the Spanish economy provided a platform for marketing investment that was more than solvent for the interests of the company. At that time, the value of company –if we limit this to its value on the market- was very high and it seemed to have a solid future during this phase of continued growth of the Spanish economy.
PRISA’s Activity in Spanish Cultural Markets (2014)
Developed by the authors.
It is in this expansive phase of the group between the late 1990s and the first half of the 2000s that PRISA launches a strong international strategy that consolidates its publishing arm’s international operations. The expansion of PRISA in Latin America takes place on various fronts. The first and most important one is close to its roots: PRISA would not have its current size without Santillana, and Santillana would be nothing without its Latin American expansion during the 1960s and 1970s.
An initial agreement between PRISA and Grupo Nación (Costa Rica) was signed in the year 2000 to create Grupo Latino de Radiodifusión Costa Rica. In 2001, it acquired 50% of Sistema Radiópolis (Mexico) from Televisa, and the two companies decided to exploit it jointly. Finally, in 2002, PRISA established a strategic alliance with Valores Bavaria (Colombia) to join Caracol Radio and Grupo Latino de Radio (GLR). The latter move gave the conglomerate a presence in Chile, Costa Rica, Panama, Mexico and the United States and the company –initially partially owned by Bavaria- came under the complete control of PRISA in 2004. In 2004, it added to its portfolio an L.A. radio station, 690 XTRA, which it purchased from Clear Channel. PRISA thus began to offer Spanish content to radio stations throughout the United States through the company GLR Networks. It also began to directly manage W Radio 690XTRA in L.A. and Caracol WSUA 1260AM in Miami. The expansion of the group in the Southern Cone began that same year with the purchase of two important Argentinean radio stations, Continental and Radio Estéreo, from Telefónica and then the 2007 purchase of Iberoamerican Radio Chile, the main operator in Chile’s private radio market, from the Venezuelan group Cisneros.
During this same period, PRISA also began to look toward the Brazilian cultural market. It acquired Editorial Moderna in 2001 and 75% of Editorial Objetiva in 2005. It also purchased the Portuguese holding Media Capital in 2007 –after having partially joined it in 2005-, which was expected to serve as a bridge for group investments in Brazil. To this we add the failed partnership with Bolivian entrepreneur Raúl Faráfulic, with whom PRISA entered the ATB TV channel, the newspapers El Nuevo Día and La Razón, and the website Bolivia.com. In 2003, the differences between the two partners became unmanageable and the Spanish group filed a complaint with the International Court of Arbitration of the International Chamber of Commerce accusing the Garáfulic family of appropriating over US$2 million from the group that were to be used to pay for credits. The disputes between the two ended with Garáfulic’s exit from the companies and the sale in 2009 to Barcelona-based firm Akaishi Investments.
In summary, over the past 15 years, PRISA has found in the international expansion of its radio division an effective complement to the transnational activity of its publishing companies. The result of this process of internationalization is an increasing dependence on foreign income, which has grown from 487.87 million Euros in 2007 to 746.15 in 2013. Spain represented 80% of PRISA’s income in 2007, but that percentage dropped to just 66% in 2013. Brazil is now the second most important market for the group (with 8.5% of billing for 2013) followed by Portugal (6.5%) and Mexico (4.8%). The publishing division obtains 80% of its income from Latin America, and radio 44%. It is not surprising that its top executive, Juan Luis Cebrián, stated that PRISA is more “an Ibero-American group than a Spanish one” during the last general shareholders’ meeting.
Comparison of Income by Market for PRISA (2007-2014)
Source: Generated using PRISA and CNMV data.
In spite of this data, the group’s financial situation has seriously deteriorated over the past few years to the point that its bank debt now exceeds three billion Euros. The cause of this is found in the financing of its expansion, which was handled through two major credit operations that totaled over 3.5 billion Euros:
A syndicated loan of 1.6 billion Euros signed with 40 financial entities on May 19, 2006, which was to expire on March 19, 2014.
A bridge loan initially signed on December 20, 2007 with HSBC to which five other entities later were added (La Caixa, BNP, Banesto, Caja Madrid and Natixis). This second loan, which involved 1.84 billion Euros, was meant to finance the public acquisition of all of the capital of its affiliate Sogecable, which owned the pay TV operator Canal Plus and the commercial TV license Cuatro. The loan initially was to expire on January 15, 2015 with the possibility of a nine-month extension.
During the second half of the past decade, just after acquiring the monumental debt it needed to continue its expansion process, the group began to face changes in the reference market (Spain). Although the PSOE government presided over by José Luis Rodríguez Zapatero authorized the conversion of the land signal of Canal Plus to open transmission in 2005, the relationship between the group and the executive branch was not particularly good. In fact, a business group close to the then-President promoted various communications initiatives that took away from PRISA’s media market, mainly the open commercial TV channel La Sexta, which was granted in 2006 and was particularly aggressive in the soccer fights market. One of the partners of reference of La Sexta, the production company Mediapro, launched the pay TV channel GolTV for the transmission of first division soccer league coverage. This not only reduced Canal Plus’s market but also submitted it to strong economic tension as a result of the renegotiation of contracts with soccer teams and the failure to pay rights that PRISA reported. Along with this increase in competition, the group has suffered as a result of the very strong retraction that has occurred in the Spanish advertising market as a result of the crash. According to Infoadex data, over the course of one decade, investment in conventional media increased from 5.6 billion in 2003 to a maximum of 7.985 in 2007 and then dropped to 4.63 in 2012. This means that over the past five years, there has been a 49.7% accumulated decrease in investment in conventional media.
The death of Jesús de Polanco in 2007 coincided with the beginning of the economic crisis, which PRISA faced with very complicated economic baggage that forced it to design a closure and asset unloading strategy, lay off staff and search for investors. The sales of 8.1% of Prisa Radio to 3i Group PLC (2008, 7.8 million Euros), the headquarters of El País and SER in Madrid and Barcelona (2008, 315 million Europs) and sometime later that of Sogecable to WP Carey (2010, 80 million Euros), 25% of Santillana Ediciones to DLJ South American Partners (2009, 213 million Euros), 35% of Media Capital to Ongoing Strategy (2009), the sale of Cuatro to Telecinco in exchange for 18.3% of the capital of Mediaset España (2009) that PRISA had already begun to liquidate (3.69% sold in 2014 for 120 million Euros) and Canal Plus to Telefónica and Mediaset (in 2009 and 2014, for around 1.7 billion Euros) and finally the sale of the general publication division of the group to Penguin Random House (2014, 72 million Euros) evidence the slow bleeding that the group has faced, unloading some of its main assets in order to partially liquidate the loans. Meanwhile, the group has secured extensions on of its debts with creditor banks. An agreement with the investment fund Liberty resulted in the 2010 merger of the two companies and a 650 million Europ life preserver. At the time, the plan to fire 18% of its staff worldwide was approved and well-known names left El País, including Maruja Torres, Javier Valenzuela, Karmentxu Marín, Santos Juliá, Ramón Lobo and Enric González. In the midst of the drop in newspaper sales and decrease in advertising investment, the crisis of El País led to the replacement of its director and most of his editorial responsibilities in 2014.
Is PRISA in a dismantling phase? Its owners deny it. Jesús de Polanco’s heirs continue controlling the holding. In fact, given the uncertainty generated by the death of its founder, his children signed a commitment to maintain the syndication of their participation in the group –which had been signed in 2003 through the company Rucandio- and not release the shares of the company for the ten years following the founder’s death, that is, until July 21, 2017.
Shareholding of the PRISA Group (2013)
Developed by the authors using the 2013 Corporate Governance Report and key data from CNMV.
The presence of the Polancos in PRISA is thus guaranteed for a few years, though it will be increasingly smaller. The merger with Liberty in 2010 led to the conversion of some stock –deemed Class B, without the right to vote, in exchange for 650 million Euros- which in late May 2014 completed the process of becoming regular shares of the company. As a result, the expansion of company capital will dilute the Polanco’s ownership. This is reflected in the latest Corporate Governance Report, which we present above. While the main assets continue to be the object of liquidation in order to cover the over 3 billion Euros of debt that is still pending, half could be paid off when the purchase of Canal Plus by Telefónica is paid (750 million Euros) and by placing the shares that the group received for the sale of Cuatro to Telecinco on the market (with a current value of around 600 million Euros).
In order to make the payment, PRISA will have to unload some of its key assets: the Santillana publishing group, part of its Spanish or Latin American radio business, or the newspaper El País. The perspectives for growth in Spain or Latin America may be determinant in this decision. While PRISA’s intention to purchase 8.14% of the radio division of the investment fund 3i, which was reached during the last shareholders’ meeting, was leaked to the press, Cebrián assured the public that “Prisa will focus on the business of education and information, with a special focus on growth in Latin America.”
It is therefore difficult to forecast the next moves of a group whose management will probably change following the definitive restructuring of its shareholdership in June 2014. It will likely still have to liquidate assets in order to deal with pending loans, and its future depends strongly on the evolution of the economies of Spain, Portugal and most of the Latin American nations.
* Patricia Marenghi, Faculty of Social Sciences, Universidad de Salamanca
* * Marina Hernández Prieto, Faculty of Social Sciences, Universidad de Salamanca