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Grupo Prisa

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Submitted By bazou87
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Grupo Prisa (PRIS.B) is a diversified media conglomerate with an excellent collection of assets but a weak balance sheet and the misfortune of doing most of its business in a troubled part of the world. Spain, which accounts for 61% of Prisa’s revenues, is going through a crisis that is even more severe than the one the U.S. went through in late 2008, so as the news has gotten worse and worse, Prisa’s stock has gotten clobbered. The B shares, which comprise the bulk of our position, closed last Friday at $2.65, down 45% year to date and down 75% in the past 12 months. The stock rose sharply yesterday, however, after the company announced a deal (discussed further below) that will significantly strengthen its balance sheet and demonstrates that the true value of the company is far higher than the current price. When things stabilize in Spain, we think the stock will likely be a multi-bagger from today’s depressed levels.

In light of the dire state of the Spanish economy, Prisa’s business is holding up remarkably well thanks to the quality of both its assets and management team: in Q1, revenues and adjusted EBITDA were only down 5.7% and 8.0% year-over-year, respectively (the earnings release is posted here.

“Ah,” you might say, “but what about the balance sheet, which is burdened with 3.5 billion euros of net debt? If Spain’s economy deteriorates further, might the company default, wiping out the equity?” We’ve thought about this question a great deal and are confident that the answer is no, for four primary reasons: 1. The company has high-quality assets that continue to produce positive cash flows; in addition, many of them are salable (we expect progress on this front over the course of this year) 2. The management and board are excellent operators and capital allocators, and have substantial skin in the game; 3. Last December, Prisa announced that it refinanced and extended all of its debt through 2014-2015; and 4. Finally, yesterday Prisa announced an important deal. It’s complex and the press release didn’t have many details, so we contacted the company and want to provide clarification here.

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