Discovery Communications Inc., the American global mass media and entertainment company, recently announced it is buying 12 Nordic television channels from Germany's ProSiebenSat.1 Media AG. This acquisition will enhance its program offering by adding fiction and sports programs to its existing portfolio for the first time.

This acquisition is the largest ever for Discovery and the acquired channels together with its own channels such as Discovery Channel, TLC and Animal Planet will enable it to have a firmer foothold in Europe. The acquisition also sweetens the exit for ProSieben's controlling private equity investors.

Nordic channels are one of the best performing assets of ProSiebenSat. Private equity investors KKR & Co and Permira together hold 88 percent of ProSieben's voting shares. The sale of Nordic channels thus will bring in a hefty dividend from the German media group.

"It means the private equity owners are able to place up to their full 53 percent stake on the market at some point," said Goldman Sachs analyst Richard Jones.

"This deal also includes our first significant foray into scripted content and the opportunity to manage a suite of nonfiction and fiction brands that bring different formats, personalities and storytelling techniques to our creative culture," said Discovery’s chief executive officer David Zaslav in a statement.

Discovery also intends to take up 20 percent equity stakes in French television group TF1's Eurosport Group and four pay-tv channels in France. It has announced a $1 billion increase in stock buybacks. According to David Zaslav investing in Eurosport was a cheaper option for Discovery and it had the potential to offer more attractive margins compared to foraying into much more expensive U.S. sports market.

Citigroup acted as financial advisor in the deal with ProSiebenSat. The Eurosport deal is worth about $221.6 million and it will give Discovery the option to raise its stake to 51 percent in two years. If Discovery indeed raises its stakes to 51 percent, TF1 could exercise a put option over the remaining 49 percent, which could potentially give the complete ownership of Eurosport to Discovery. With the investment of about $18.2 million in the French pay channels Discovery has the ownership of Histoire, Ushuaia TV, TV Breizh and Stylia channels.

ProSieben wanted to sell the division last year but had called off an attempt to sell the division as offers were too low. Discovery was one of the bidders last year too. This year in August the German media company announced that it was looking again at selling after receiving expressions of interest.

After restructuring, KKR and Permira could dispose their stakes after ProSieben converts its non-voting preference shares into voting common shares so as to attract a broader investment base.

The sale is expected to be complete in the first quarter of 2013. After the sale the German media Group plans pay a dividend of about 5.60 euros (about $7.37) per share. ProSieben paid a dividend of about $1.54 per preference share and $1.51 per common share in 2012.

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