Prospectus
MEDIASET S.P.A. (incorporated with limited liability under the laws of the Republic of Italy) €375,000,000 5.125 per cent. Notes due 24 January 2019
The issue price of the €375,000,000 5.125 per cent. Notes due 24 January 2019 (the "Notes") of Mediaset S.p.A. (the "Issuer") is 99.463 per cent. of their principal amount. Unless previously redeemed or purchased and cancelled, the Notes will be redeemed at their principal amount on 24 January 2019. The Notes are subject to redemption in whole at their principal amount at the option of the Issuer at any time in the event of certain changes affecting taxation in the Republic of Italy. See "Terms and Conditions of the Notes — Redemption and Purchase". The Notes will bear interest from 24 October 2013 at the rate of 5.125 per cent. per annum payable annually in arrear on 24 January each year commencing on 24 January 2014. Payments on the Notes will be made in Euros without deduction for or on account of taxes imposed or levied by the Republic of Italy to the extent described under "Terms and Conditions of the Notes — Taxation". An investment in the Notes involves certain risks. For a discussion of these risks, see "Risk Factors" on page 3. This Prospectus has been approved by the Commission de Surveillance du Secteur Financier (the "CSSF"), in its capacity as competent authority in Luxembourg, as a prospectus under the Luxembourg Law of 10 July 2005 on Prospectuses for Securities (the "Luxembourg Prospectus Law"), which implements Directive 2003/71/EC (the "Prospectus Directive" as amended, which includes the amendments made by Directive 2010/73/EU). Application has been made for the Notes to be listed on the Official List and admitted to trading on the regulated market of the Luxembourg Stock Exchange, which is a regulated market for the purposes to the Markets in Financial Instruments Directive 2004/39/EC (as amended). This Prospectus (together with the documents incorporated by reference herein) is available on the Luxembourg Stock Exchange's website (www.bourse.lu). The CSSF gives no undertaking as to the economic or financial opportuneness of the transactions contemplated by this Prospectus or the quality or solvency of the Issuer in line with the provisions of article 7(7) of the Luxembourg Prospectus Law. The Notes have not been, and will not be, registered under the United States Securities Act of 1933 (the "Securities Act") and are subject to United States tax law requirements. The Notes are being offered outside the United States by the Joint Lead Managers (as defined herein) in accordance with Regulation S under the Securities Act ("Regulation S"), and may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Notes will be in bearer form and in the denominations of €100,000 and integral multiples of €1,000 in excess thereof up to and including €199,000. The Notes will initially be in the form of a temporary global note (the "Temporary Global Note"), which will be deposited on or around 24 October 2013 (the "Closing Date") with a common safekeeper for Euroclear Bank SA/NV ("Euroclear") and Clearstream Banking, société anonyme, ("Clearstream, Luxembourg"). The Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent global note (the "Permanent Global Note") not earlier than 40 days after the Closing Date upon certification as to non-U.S. beneficial ownership. The Permanent Global Note will be exchangeable in certain limited circumstances in whole, but not in part, for Notes in definitive form in the denominations of €100,000 and integral multiples of €1,000 in excess thereof up to and including €199,000. See "Summary of Provisions Relating to the Notes in Global Form". Joint Lead Managers
BANCA IMI BNP PARIBAS MEDIOBANCA - BANCA DI CREDITO FINANZIARIO S.p.A. UNICREDIT BANK
23 October 2013
CONTENTS
Page
IMPORTANT NOTICES ...... 1 RISK FACTORS ...... 3 INFORMATION INCORPORATED BY REFERENCE ...... 14 TERMS AND CONDITIONS OF THE NOTES ...... 16 SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM ...... 29 DESCRIPTION OF THE ISSUER...... 31 OVERVIEW OF CONSOLIDATED FINANCIAL INFORMATION OF THE ISSUER ...... 65 TAXATION ...... 71 SUBSCRIPTION AND SALE ...... 77 GENERAL INFORMATION ...... 79
IMPORTANT NOTICES
This document comprises a prospectus for the purposes of Article 5.3 of the Prospectus Directive.
The Issuer accepts responsibility for the information contained in this Prospectus and declares that, to the best of its knowledge, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is in accordance with the facts and contains no omission likely to affect its import.
The Issuer has confirmed to Banca IMI S.p.A., BNP Paribas, Mediobanca - Banca di Credito Finanziario S.p.A. and UniCredit Bank AG (together, the "Joint Lead Managers") that this Prospectus contains all information regarding the Issuer and the Notes which is (in the context of the issue of the Notes) material; such information is true and accurate in all material respects and is not misleading in any material respect; any opinions, predictions or intentions expressed in this Prospectus on the part of the Issuer are honestly held or made and are not misleading in any material respect; this Prospectus does not omit to state any material fact necessary to make such information contained herein (in such context) not misleading in any material respect; and all reasonable enquiries have been made to ascertain and to verify the foregoing.
This Prospectus should be read in conjunction with all information which is incorporated by reference in and forms part of this Prospectus (see "Information Incorporated by Reference").
The Issuer has not authorised the making or provision of any representation or information regarding the Issuer or the Notes other than as contained in this Prospectus or as approved for such purpose by the Issuer. Any such representation or information should not be relied upon as having been authorised by the Issuer or the Joint Lead Managers.
Neither the delivery of this Prospectus nor the offering, sale or delivery of any Note shall in any circumstances create any implication that the information contained herein concerning the Issuer or the Issuer together with its subsidiaries (the "Mediaset Group" or the "Group") is correct at any time subsequent to the date hereof or that any other information supplied in connection with the offering of the Notes is correct as of any time subsequent to the date indicated in the document containing the same, or that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer or the Group since the date of this Prospectus.
Neither this Prospectus nor any other information supplied in connection with the offering of the Notes (a) is intended to provide the basis of any credit or other evaluation or (b) should be considered as a recommendation by the Issuer or any of the Joint Lead Managers that any recipient of this Prospectus or any other information supplied in connection with the offering of the Notes should purchase any Notes. Each investor contemplating purchasing any Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer or the Group. Neither this Prospectus nor any other information supplied in connection with the offering of the Notes constitutes an offer or invitation by or on behalf of the Issuer or any of the Joint Lead Managers to any person to subscribe for or to purchase any Notes.
The distribution of this Prospectus and the offering, sale and delivery of Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer and the Joint Lead Managers to inform themselves about and to observe any such restrictions. Neither the Issuer nor the Joint Lead Managers represent that this Prospectus may be lawfully distributed, or that the Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, nor do they assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer or the Joint Lead Managers which is intended to permit a public offering of the Notes or the distribution of this Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations.
For a description of certain restrictions on offers, sales and deliveries of Notes and on distribution of this Prospectus and other offering material relating to the Notes, see "Subscription and Sale". In particular, the Notes have not been and will not be registered under the Securities Act and are subject to United
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States tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons.
In this Prospectus, unless otherwise specified: references to a "Member State" are references to a Member State of the European Economic Area; references to "€", "EUR" or "Euro" are to the currency introduced at the start of the third stage of European economic and monetary union, and as defined in Article 2 of Council Regulation (EC) No. 974/98 of 3 May 1998 on the introduction of the euro, as amended; and references to "billions" are to thousands of millions.
Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables, including percentages, may not be an arithmetic aggregation of the figures which precede them.
The language of this Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.
STABILISATION
In connection with the issue of the Notes, UniCredit Bank AG (the "Stabilising Manager") (or persons acting on behalf of the Stabilising Manager) may over allot Notes or effect transactions with a view to supporting the price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or persons acting on behalf of a Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or over-allotment must be conducted by the Stabilising Manager (or persons acting on behalf of the Stabilising Manager) in accordance with all applicable laws and rules.
MARKET SHARE INFORMATION AND STATISTICS
This Prospectus contains information and statistics regarding the market share of the Mediaset group and the audience ratings of its television channels, which are derived from, or are based upon, the Issuer's analysis of data obtained from Auditel and AGB Nielsen (audience ratings) and Nielsen (advertising) for Italy and from Infoadex (audience ratings) and Kantar Media (advertising) for Spain. Such third party information has been reproduced accurately in this Prospectus and, as far as the Issuer is aware and is able to ascertain from information published by such entities, no facts have been omitted which would render such reproduced information inaccurate or misleading.
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RISK FACTORS
The Issuer believes that the following risk factors may affect its ability to fulfil its obligations under the Notes. Most of these risk factors are contingencies which may or may not occur and the Issuer is not in a position to express a view on the likelihood of any such contingency occurring. In addition, risk factors which are material for the purpose of assessing the market risks associated with the Notes are also described below.
The Issuer believes that the risk factors described below represent the principal risks inherent in investing in the Notes, but the inability of the Issuer to pay interest, principal or other amounts on or in connection with the Notes may occur for other reasons which may not be considered significant risks by the Issuer based on information currently available to it or which it may not currently be able to anticipate.
Prospective investors should also read the detailed information set out elsewhere in this Prospectus and reach their own views prior to making any investment decision.
Words and expressions defined in "Terms and Conditions of the Notes" or elsewhere in this Prospectus have the same meaning in this section. References to a "Condition" is to such numbered condition in the Terms and Conditions of the Notes. Prospective investors should read the entire Prospectus.
Risks relating to the Issuer and the Group
Risks related to the evolution of the advertising market
Sales from television advertising still represents the main source of revenue for the Group (in 2012, equal to 75 per cent. of the Group's total net consolidated revenues - a percentage calculated by adding net Italian and Spanish "Total net advertising revenues") despite the start up of Pay TV activities and the development of a number of diversification initiatives (such as the sale of multiplatform contents, teleshopping, and movie distribution).
In the current general and sector contexts, the revenues from advertising sales are subject to shorter economic cycles and are very sensitive to the general economic trends and to the evolution of the markets where its customers operate.
In particular, the revenues from advertising sales have been severely affected by the financial and economic crisis which has spread over Europe from 2008, with specific consequences for the reference markets in which the Group operates (Italy and Spain).
Moreover, advertising sales are also affected by increasing competition in the media sector, as a result of the continuous technological developments in the sector. This causes fragmentation and diversification in the consumption of products and multiplatform audio-visual media.
In this context, the data related to the total television viewing in Italy shows a trend of constant growth in television consumption; however, such growth appears to be distributed among a far greater variety and number of channels. This demand for a greater variety and number of channels is accompanied by the increased penetration of the digital terrestrial platform and is gradually eroding the television viewing share held by the historical and generalist TV channels in favour of semi-generalist channels, which have increased their attractiveness and competition, due to their greater ability to focus on the profiling of very specific audience targets.
As of 31 December 2012, revenues from the advertising market have registered a negative trend as compared to 2011, with a decrease respectively equal to 14.7 per cent. in Italy and to 18.9 per cent. in Spain1.
The economic downturn in the Italian and Spanish advertising market as well as by the increase in competition in the media sector could have an adverse effect on the Group's business, financial condition or results of operations and, therefore, on the Issuer's ability to meet its obligations under the Notes.
1Source: Kantar Media/Infoadex
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Risks related to economic trends
The operating profits and the general financial situation of the Issuer are influenced by a variety of factors that are part of the wider economic context, including the increase or decrease in Italy's gross domestic product, consumer and business confidence levels as well as consumer credit interest rate trends.
In particular, the core business of the Group depends largely on the progress of the Group's advertising investments, which are cyclical and, even if there are some differences between the various commodity sectors, very closely related to general economic trends and to the growth of end markets in which the customer companies operate.
The economic context in which the Group operates (both in Italy and Spain) has been and remains deeply affected by the worldwide economic and financial crisis that began in 2008 and the subsequent sovereign debt crisis in Europe. In particular, 2012 was characterised by continued negative economic trends, which have accentuated, both in Italy and Spain, the decrease in advertising investments and have also resulted in a further decrease in the availability of and an increase in the cost of credit and/or funding.
Several governments, international and supranational organisations and monetary authorities have taken measures to provide financial assistance to Eurozone countries in economic difficulty; it remains difficult, however, to predict the effect of these measures on the economy and on the financial system, and how long the crisis will exist and to what extent the Issuer's business, results of operations and financial condition may be adversely affected.
The results of the Group in 2012 and in the first half of 2013 have been influenced by the negative trends of the traditional markets in which the Group operates and, specifically, by the decline of advertising investments and the reduction of general consumption by households.
The persistence of the negative economic and consumption trends described above could have an adverse effect on the Group's business, financial condition or results of operations and, therefore, on the Issuer's ability to meet its obligations under the Notes.
Risks relating to technological changes, audience fragmentation and increased competition
The traditional broadcaster models are now subject to increased competition as a result of technological innovation in this field. The introduction of new and innovative broadcasting and distribution platforms are progressively changing the consumption methodologies of the end users, pointing them towards models that are becoming increasingly customised and less standardised in terms of their usage of services, contents and advertising.
In recent years, the television sector has been characterised by a structural transformation primarily triggered by the introduction of digital technology. The main market trends that are currently shaping the new dynamics of competition can be summarised as follows:
The technological advances have progressively changed content use, favouring the introduction of interactive/on demand media and particularly accelerating the migration of younger viewers towards more "customised" options.
The demand for entertainment products continues to grow both in relation to traditional media and new platforms.
With regard to the sector of commercial generalist television, the convergence between broadcasting platforms creates, on the one hand, the opportunity for growth with multi-channel offers and Pay TV but, on the other hand, it creates potential risks such as audience fragmentation and an increase in the total overall number of available platforms for television contents (i.e., satellite, internet, mobile, etc.), which is leading to a higher level of complexity in the competitive context.
The increase in the number of broadcasting distribution platforms increases the value of the broadcasting contents, strengthening the competitive advantage of the "traditional" operators that have the know-how regarding the creation and the packaging of the contents and the construction of the programme schedules.
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The absence of technological barriers increases the risk for the traditional broadcasters to be bypassed by other broadcasters who directly hold contents and original formats, or by the Internet operators, some of whom are beginning to purchase TV content on the open market, in an attempt to duplicate offer models that are in competition with those of the traditional broadcasters.
Specifically, the Italian market is characterised by the presence of two Pay TV operators. Until 2011, this market recorded very significant growth rates, mainly because of the launch and the expansion of the Mediaset Premium offer;
In Spain, the generalist television sector was, in the past, characterised by a large number of operators and this, consequently, resulted in a higher degree of audience fragmentation and competition for valuable contents. Successively, the market has been consolidated around the two main private operators, consisting of Mediaset España and Antena 3.
Therefore, from the context described above, the Group is exposed to a risk of declining interest in free- to-air generalist television on the part of viewers, who have become increasingly more sophisticated and increasingly demanding in terms of new communication media and, consequently, there is a risk that the Group may not adequately take advantage of the opportunities coming from new emerging business, which may, in turn, have an adverse effect on the Issuer's financial condition and results of operations and, consequently, on the Issuer's ability to meet its obligations under the Notes.
The competitive position of the Group also depends on its highly skilled resources with extensive expertise in the television business. However, there can be no assurance that the Group will continue to be successful in attracting and retaining highly skilled resources in the future. The inability to identify, attract and retain highly skilled personnel in the future may make it difficult for the Group to manage its business and could adversely affect its operations and financial results.
Risks related to the content market
A further element characterising the evolution of the media and communication sector is the growing value of content.
In Italy, Mediaset, through its subsidiary company R.T.I. S.p.A. ("RTI"), owns the largest Italian library2 of television rights and one of the largest in Europe3, thanks to multi-year agreements entered into both with the leading American major studios and distributors and with independent American and European producers for TV movies, soap operas, mini-series and telefilms. Such agreements ensure the constant availability of all the necessary content for both the Free TV and Pay TV business of the Group.
Nevertheless, an increase in the costs associated with production or with the acquisition of content or programming rights from third parties, a breach by third party content providers of their contractual obligations as well as the inability to create popular original programming could have an adverse effect on the Group's business, financial condition or results of operations and, therefore, on the Issuer's ability to meet its obligations under the Notes.
Risks related to the regulatory framework
The Group operates in various business areas that are governed by strict regulations. Therefore, the regulatory risks for the Group are mainly represented by the expansion and/or the tightening of regulations applicable to the business areas in which the Group operates, (for example, by the introduction of stricter regulations concerning the calculation of antitrust limits, the protection of minors from listening and viewing certain types of content, overcrowding, insertions, advertising breaks, safeguarding pluralism and equal treatment, the limitation of electromagnetic emissions, urbanistic limitations on constructing broadcasting and network infrastructures and the suspension of the tender for assigning frequencies (the so-called "beauty contest")) and the consequent uncertainties created by such regulations.
The legal and regulatory framework within which the Group operates has recently changed in the following respects:
2Source: data elaborated by the Issuer’s management on the basis of publicly available information. 3Source: data elaborated by the Issuer’s management on the basis of publicly available information.
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(i) in April 2013 the Italian Communications Regulatory Authority (Autorità per le Garanzie nelle Comunicazioni or "AGCOM") published new regulations governing the assignment of digital terrestrial multiplexes. Such regulations introduced a new criterion regarding the financial offer, excluding from the tender competition all those operators who were already in possession of three or more multiplexes, i.e. Mediaset, RAI and Telecom). Only the so-called "new entries" and Sky were, therefore, permitted to tender. As of the date of this Prospectus, the Group is evaluating whether it should oppose this regulation and include it within the context of the dispute that was set in motion by the Group to challenge the suspension of the public tender for the gratuitous assignment of frequencies (so-called "beauty contest");
(ii) in March 2013, the Spanish Government approved a resolution (acuerdo) to enforce the ruling of the Spanish Supreme Court of 27 November 2012 that declared null and void the resolution passed by the Council of Ministers on 16 July 2010, which had assigned an additional channel to each individual television broadcaster (including Mediaset España) completing the space of four channels that corresponds to a digital multiplex with integrated national coverage. As a result of the Spanish Government resolution, Mediaset España must cease to broadcast on certain of its channels that are still to be determined. Mediaset España will, however, be permitted to broadcast on the frequencies in question at least until the end of 2014.
Any failure to respect any regulations (including those referred to above) that the Issuer and/or the Group may be subject to could result in economic (due to the application of administrative sanctions), image and reputational damages.
Despite the Group's attempts to monitor changes in the regulatory framework and the impact they may have on its business or on the public, certain elements and situations could emerge (such as future changes in laws, regulations and regulatory policies) which may be beyond the Issuer's control or for which it may be difficult to measure the relevant impact on the Group's activities.
For further details, please see "Description of the Issuer – Legal and regulatory framework".
Risks related to the Group's reputation
One of the Group's strategic objectives is the ability to maintain and increase over time content innovation and brand value perception, consistently with the development of its business model. In relation to this objective, there is a risk that an inadequate response in terms of strategies and publishing and communication initiatives could have a negative impact on the financial markets' and public opinion's perception of the Mediaset brand, which could have an adverse effect on the Group's business, financial position or results of operations and, therefore, on the Issuer's ability to meet its obligations under the Notes.
Risks related to the policy regarding the establishment of partnerships and alliances
Historically, the Group has pursued a strategy of external growth based on a policy centred on the establishment of targeted partnerships and alliances, with the objective of ensuring the compatibility of business integration and/or identifying internationalisation opportunities vis-à-vis the return targets of the initial investment. This type of transaction naturally exposes the Group to risks regarding the issuance of authorisations, the implementation of the underlying business models and business projects and the risk of changes in the political and regulatory landscape in sectors and/or geographical areas other than the usual ones. This may result in a deterioration of the know-how of participants in the partnership and alliance and also a loss of value in the investments made. There can be no assurance that the Group will continue to be able to establish such partnerships and alliances on terms favourable or reasonable to the Group and if established, that its related investments will not be subject to value loss which could adversely affect the Group's business, financial position or results of operations.
Risks related to business discontinuance
For an integrated television Group, the risk of business discontinuance mainly refers to the categories described below:
risk that the network infrastructure is not adequate to ensure the level of service in terms of availability; and
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risk of partial coverage failure in certain areas resulting from a lack of international coordination in the transition to digital technology.
In respect of the first risk category, although the Issuer believes that it has in place measures that significantly reduce the risk of discontinuance, there can be no assurance that such measures will prevent failures in the Group's technologies, network or operational systems. The second type of risk indicated above is generated by the necessity to coordinate the transmission equipment used in Italy with the equipment used in neighbouring countries. This coordination can impose limits in the coverage to certain areas, in particular for equipment situated in border areas.
Notwithstanding any measures the Issuer may have in place in order to reduce the aforementioned risks, any failure that results in significant interruptions to the Group's operations or in partial coverage in certain areas could have an adverse effect on the Group's business, financial condition or results of operations and, therefore, on the Issuer's ability to meet its obligations under the Notes.
Financial risks
Future performance of the Group depends, among other things, on its ability to meet its payment obligations and to make scheduled investments by using available operating cash flow and cash and by turning to the capital markets or other sources of financing.
In light of the foregoing, the Group has adopted a strategy designed to cut costs and investments, making it possible to reduce the Group's net financial debt.
The Group has recently continued its process of consolidating its financial debt, which continues to be based on a significant predominance of medium/long-term loans and committed lines of credit which altogether represent more than 100 per cent. of the Group's total debt as at 30 June 2013.
The proportion of committed loans maturing within the next 12 months is 18 per cent. but only Euro 20 million were drawn as of 30 June 2013.
In line with the Group's internal policy on liquidity, the overall financial exposure of the Group (which includes the Group's financial indebtedness as well as any bonds issued by the Group) does not exceed and must remain below 80 per cent. of the total amount of funding currently provided by lenders.
The Group acquires television and film rights in currencies other than Euro (mainly US Dollar). This exposes the Group to risks related to fluctuations in exchange rates.
Although the Group seeks to reduce these risks by, inter alia, use of hedging derivative instruments, there can be no assurance that these hedging strategies will effectively fully protect the Group from fluctuations in exchange or interest rates.
Risks related to the Issuer's certain restated consolidated financial information
The income statement data contained in the unaudited consolidated financial statements of the Issuer as of and for the six months ended 30 June 2012 have been restated (the "Restated Financial Information") in order to take into account, retrospectively from 1 January 2012, the impacts connected with the re- measurement of the book values and the estimated useful lives of certain assets, which took place within the context of the final allocation process regarding the assets and liabilities acquired by the Group as a result of the business combination between the "Tower" businesses owned by the Mediaset Group and the DMT group.
The Restated financial information is set forth in the section entitled "Overview of Consolidated Financial Information of the Issuer" below and has been inserted for information purposes only.
The preparation of the Restated Financial Information with respect to the income statement contained in the unaudited consolidated financial statements of the Issuer as of and for the six months ended 30 June 2012, has been conducted by the Issuer in accordance with IFRS 3.
However, the Restated Financial Information has been prepared by the Issuer and has not been separately audited or reviewed by independent auditors. Reconta Ernst & Young S.p.A. has examined the methods adopted to restate the income statement contained in the unaudited consolidated financial statements of
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the Issuer as of and for the six months ended 30 June 2012 only for the purpose of their review report in relation to the unaudited consolidated financial statements of the Issuer as of and for the six months ended 30 June 2013, incorporated by reference herein.
Investors are cautioned against placing undue reliance on the Restated Financial Information, as it may not be representative of actual results of operations or financial condition.
Risks related to environmental regulation
The Group must comply with regulations on environmental protection, the most relevant of which primarily govern the electromagnetic fields attributable to the Group and the Group's development and management of signal broadcasting networks in Italy. In Italy, exposure to electrical, magnetic and electromagnetic fields is governed by Italian Framework Law 36 of 2001 and Italian Presidential Decree of the Council of Ministers of 8/7/2003, which establish exposure thresholds for fields and equipment that generate electrical, magnetic and electromagnetic fields with a frequency ranging from between 100 kHz to 300 GHz.
While the Issuer believes that the Group's plants are designed, developed and managed in compliance with applicable laws and regulations and the Group has put in place necessary measures in order to limit electromagnetic pollution within the parameters established by applicable laws and regulations, there can be no assurance that more rigorous environmental laws and regulations will not be introduced, which could significantly increase the Group's compliance or monitoring costs or cause the Group to face environmental liabilities.
Risks related to legal disputes
Due to the nature of its business, the Issuer and its subsidiaries are involved in a number of legal, regulatory and arbitration proceedings involving claims by and against them arising out of the ordinary course of their business. While it is not feasible to predict or determine the ultimate outcome of these proceedings, whenever there are circumstances that give rise to well-founded expectations by third parties that the Issuer or its subsidiaries are responsible for or have to take on responsibility vis-à-vis the fulfilment of any obligation, the Group has made consistent allocations to risk provisions, recognised in liabilities in the Group's financial statements. However, the Group bases its estimates on the effect of the outcome of litigation on expectations, beliefs and assumptions on future developments that are subject to inherent uncertainties. Accordingly, there can be no assurance that provisions relating to litigation will be sufficient to cover the Group's ultimate loss or expenditure in its full entirety and/or that the results of certain legal proceedings will not harm the Group's reputation or brands.
The Group is exposed to the risk of piracy of its feature films, television programming and other content Piracy of motion pictures, television programming, video content and DVDs poses challenges to several of the Group's businesses. The proliferation of unauthorised copies and piracy of the Group's products or the products it licenses from third parties can have an adverse effect on its businesses and profitability because these products reduce the revenue that the Group potentially could receive from the legitimate sale and distribution of its content. Policing the unauthorised use of the Group's intellectual property is difficult, and the steps taken by the Group to combat piracy will not prevent the infringement by and/or piracy of unauthorised third parties in every case. There can be no assurance that the Group's efforts to enforce its rights and protect its intellectual property will be fully successful in reducing content piracy.
Risks related to the enforcement of its intellectual property rights
The Group relies on copyright, trademark and trade secret laws in Italy, Spain and similar laws in other countries, and licenses and other agreements with its employees, customers, suppliers and other parties, to establish and maintain its intellectual property rights in technology and products and services used in its various operations. However, the Group's intellectual property rights could be challenged or invalidated, or such intellectual property rights may not be sufficient to permit it to take advantage of current industry trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of certain product and service offerings or other competitive harm. Also, because of the rapid pace of technological change in the industries in which the Group operates, a part of its business relies on technologies developed or licensed by third parties, and the Group may not be able to obtain or to continue to obtain licenses from these third parties on reasonable terms, if at all.
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Risk relating to the Notes
The Notes are not rated
Neither the Notes nor the long-term debt of the Issuer are rated. To the extent that any credit rating agencies assign credit ratings to the Notes, such ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes. A rating or the absence of a rating is not a recommendation to buy, sell or hold securities.
There is no active trading market for the Notes
The Notes are new securities which may not be widely distributed and for which there is currently no active trading market. If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the financial condition of the Issuer. Although applications have been made for the Notes to be admitted to listing on the official list and trading on the Luxembourg Stock Exchange's regulated market, there is no assurance that such applications will be accepted or that an active trading market will develop. Accordingly, there is no assurance as to the development or liquidity of any trading market for the Notes.
The Notes are fixed rate securities and are vulnerable to fluctuations in market interest rates
The Notes will carry fixed interest. A holder of a security with a fixed interest rate is exposed to the risk that the price of such security falls as a result of changes in the current interest rate on the capital markets (the "Market Interest Rate"). While the nominal interest rate of a security with a fixed interest rate is fixed during the life of such security or during a certain period of time, the Market Interest Rate typically changes on a daily basis. As the Market Interest Rate changes, the price of such security changes in the opposite direction. If the Market Interest Rate increases, the price of such security typically falls, until the yield of such security is approximately equal to the Market Interest Rate. Conversely, if the Market Interest Rate falls, the price of a security with a fixed interest rate typically increases, until the yield of such security is approximately equal to the Market Interest Rate. Investors should be aware that movements of the Market Interest Rate could adversely affect the market price of the Notes.
The Notes may not be a suitable investment for all investors
Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
(a) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained or incorporated by reference in this Prospectus or any applicable supplement;
(b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact the Notes will have on its overall investment portfolio;
(c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including where the currency for principal or interest payments is different from the potential investor's currency;
(d) understand thoroughly the terms of the Notes and be familiar with the behaviour of financial markets; and
(e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
The Notes may be redeemed prior to maturity
In the event that the Issuer would be obliged to increase the amounts payable in respect of any Notes due to any withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf
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of the Republic of Italy or any political subdivision thereof or any authority therein or thereof having power to tax, the Issuer may redeem all outstanding Notes in accordance with the Conditions as described under "Terms and Conditions of the Notes – Redemption for tax reasons". If the Issuer calls and redeems the Notes in the circumstances mentioned above, the Noteholders may not be able to reinvest the redemption proceeds in securities offering a comparable yield.
Change of Control
Upon the occurrence of certain change of control events relating to the Issuer, as set out in Condition 5(c) (Redemption and Purchase - Redemption at the option of Noteholders upon a Change of Control), under certain circumstances the Noteholders will have the right to require the Issuer to redeem all outstanding Notes at 100 per cent. of their principal amount. It is possible, however, that the Issuer will not have sufficient funds to redeem the Notes at the time that a Change of Control in respect of the Issuer occurs. If sufficient funds are not available to the Issuer for the purposes of carrying out the redemption, Noteholders may receive less than the principal amount of the Notes should they elect to exercise their right to redeem. Furthermore, if such a right to redeem is exercised by the Noteholders, this might adversely affect the Issuer's financial position.
Because the Global Notes are held by or on behalf of Euroclear and Clearstream, Luxembourg, investors will have to rely on their procedures for transfer, payment and communication with the Issuer
Except in certain limited circumstances described in the Permanent Global Note, investors will not be entitled to receive definitive Notes and, as a result, the Notes will be represented by Global Notes. These will be deposited with a common safekeeper for Euroclear and Clearstream, Luxembourg, which will maintain records of the beneficial interests in the Global Notes. While the Notes are represented by the Global Notes, investors will be able to trade their beneficial interests only through Euroclear and Clearstream, Luxembourg.
The Issuer will discharge its payment obligations under the Notes by making payments to or to the order of the common safekeeper for Euroclear and Clearstream, Luxembourg for distribution to their account holders. A holder of a beneficial interest in a Global Note must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the Notes. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Notes.
Holders of beneficial interests in the Global Notes will not have a direct right to vote in respect of the Notes. Instead, such holders will be permitted to act only to the extent that they are enabled by Euroclear and Clearstream, Luxembourg to appoint appropriate proxies.
The Notes do not restrict the amount of debt which the Issuer may incur
The terms and conditions relating to the Notes do not contain any restriction on the amount of indebtedness which the Issuer and its Subsidiaries may from time to time incur. In the event of any insolvency or winding-up of the Issuer, the Notes will rank equally with the Issuer's other unsecured senior indebtedness and, accordingly, any increase in the amount of the Issuer's unsecured senior indebtedness in the future may reduce the amount recoverable by Noteholders. In addition, the Notes are unsecured and, save as provided in Condition 3 (a) (Negative Pledge), do not contain any restriction on the giving of security by the Issuer and its Subsidiaries over present and future indebtedness. Where security has been granted over assets of the Issuer to secure indebtedness, in the event of any insolvency or winding-up of the Issuer, such indebtedness will, in respect of such assets, rank in priority over the Notes and other unsecured indebtedness of the Issuer.
Minimum Denomination
As the Notes have a denomination consisting of the minimum denomination plus a higher integral multiple of another smaller amount, it is possible that the Notes may be traded in amounts in excess of €100,000 that are not integral multiples of €100,000. In such case a Noteholder who, as a result of trading such amounts, holds a principal amount of less than the minimum denomination may not receive a definitive Note in respect of such holding (should definitive Notes be printed) and would need to purchase a principal amount of Notes such that its holding amounts to the minimum denomination. If
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definitive Notes are issued, holders should be aware that definitive Notes which have a denomination that is not an integral multiple of €100,000 may be illiquid and difficult to trade.
Payments in respect of the Notes may in certain circumstances be made subject to withholding or deduction of tax
All payments in respect of Notes will be made free and clear of withholding or deduction of Italian taxation, unless the withholding or deduction is required by law. In that event, the Issuer will pay such additional amounts as will result in the Noteholders receiving such amounts as they would have received in respect of such Notes had no such withholding or deduction been required. The Issuer's obligation to gross up is, however, subject to a number of exceptions, including withholding or deduction of:
(a) Italian substitute tax (imposta sostitutiva), pursuant to Italian Legislative Decree No. 239 of 1 April 1996; and
(b) withholding tax operated in certain EU Member States pursuant to EC Council Directive 2003/48/EC and similar measures agreed with the European Union by certain non-EU countries and territories, a brief description of which is set out below.
Prospective purchasers of Notes should consult their tax advisers as to the overall tax consequences of acquiring, holding and disposing of Notes and receiving payments of interest, principal and/or other amounts under the Notes, including in particular the effect of any state, regional or local tax laws of any country or territory. See also "Taxation".
Italian substitute tax
Italian substitute tax is applied to payments of interest and other income (including the difference between the redemption amount and the issue price) at a rate of 20 per cent. to (i) certain Italian resident Noteholders and (ii) non-Italian resident Noteholders who have not filed in due time with the relevant depository a declaration (autocertificazione) stating, inter alia, that he or she is resident for tax purposes in a country which allows for an adequate exchange of information with the Italian tax authorities.
EU Savings Tax Directive
Under EC Council Directive 2003/48/EC on the taxation of savings income (the "EU Savings Tax Directive"), each Member State is required to provide to the tax authorities of another Member State details of payments of interest or other similar income paid by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain limited types of entity established in that other Member State. However, for a transitional period, Austria and Luxembourg may instead apply a withholding system in relation to such payments, deducting tax at a rate of 35 per cent. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to the exchange of information relating to such payments.
On 10 April 2013, Luxembourg officially announced that it will no longer apply the withholding tax system as from 1 January 2015 and will provide details of payment of interest (or similar income) as from this date.
A number of non-EU countries, including Switzerland, Andorra, Liechtenstein, Monaco and San Marino, and certain dependent or associated territories of certain Member States, including Jersey, Guernsey, Isle of Man, Montserrat, British Virgin Islands, Netherlands Antilles, Aruba, Anguilla, Cayman Islands, Turks and Caicos Islands, Bermuda and Gibraltar, have adopted similar measures (either provision of information or transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain limited types of entity established in a Member State. In addition, Member States have entered into provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a Member State to, or collected by such a person for, an individual resident or certain limited types of entity established in one of those territories.
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The European Commission has proposed certain amendments to the EU Savings Tax Directive, which may, if implemented, amend or broaden the scope of the requirements described above. Investors who are in any doubt as to their position should consult their professional advisers.
Implementation in Italy of the EU Savings Tax Directive
Italy has implemented the EU Savings Tax Directive through Legislative Decree No. 84 of 18 April 2005 ("Decree 84"). Under Decree 84, subject to a number of important conditions being met, in case of interest paid to individuals which qualify as beneficial owners of the interest payments and are resident for tax purposes in another Member State, Italian qualified paying agents shall report to the Italian tax authorities details of the relevant payments and personal information on the individual beneficial owner and shall not apply the withholding tax provided by the above mentioned Savings Directive. Such information is transmitted by the Italian tax authorities to the competent foreign tax authorities of the State of residence of the beneficial owner.
Either payments of interest on the Notes or the realisation of the accrued interest through the sale of the Notes would constitute "payments of interest" under article 6 of the directive and, as far as Italy is concerned, article 2 of Decree 84. Accordingly, such payments of interest arising out of the Notes would fall within the scope of the directive.
Change of law or administrative practice
The terms and conditions of the Notes are based on English law in effect as at the date of this Prospectus, save that provisions convening meetings of Noteholders and the appointment of a Noteholders’ Representative are subject to compliance with mandatory provisions of Italian law. No assurance can be given as to the impact of any possible judicial decision or change to English law and/or Italian law (where applicable) or administrative practice after the date of this Prospectus.
Modification
The conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.
Risks related to the market generally
Set out below is a brief description of the principal market risks.
The secondary market generally
The Notes may have no established trading market when issued and one may never develop. If a market does develop, it may not be very liquid and, consequently, investors may not be able to sell their Notes easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Illiquidity may have a severely adverse effect on the market value of the Notes.
The market value of the Notes may also be significantly affected by factors such as variations in the Group's annual and interim results of operations, news announcements or changes in general market conditions. In addition, broad market fluctuations and general economic and political conditions may adversely affect the market value of the Notes, regardless of the actual performance of the Group.
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Delisting of the Notes
Application has been made for the Notes to be listed on the Official List and admitted to trading on the regulated market of the Luxembourg Stock Exchange. After such listing and admission to trading on the regulated market of the Luxembourg Stock Exchange has successfully taken place, the Notes may subsequently be delisted despite the best efforts of the Issuer to maintain such listing. Although no assurance is made by the Issuer as to the liquidity of the Notes as a result of such listing, any delisting of the Notes may have a material effect on a Noteholder's ability to re-sell its Notes on the secondary market.
Legal investment considerations may restrict certain investments
The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) Notes are legal investments for it, (ii) Notes can be used as collateral for various types of borrowing and (iii) other restrictions apply to the purchase or pledge of any Notes. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of Notes under any applicable risk-based capital or similar rules.
Exchange rate risks and exchange controls
The Issuer will pay principal and interest on the Notes in Euro. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the "Investor's Currency") other than Euro. These include the risk that exchange rates may change significantly (including changes due to devaluation of the Euro or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to the Euro would decrease (i) the Investor's Currency-equivalent yield on the Notes, (ii) the Investor's Currency-equivalent value of the principal payable on the Notes and (iii) the Investor's Currency-equivalent market value of the Notes.
In addition, government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal.
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INFORMATION INCORPORATED BY REFERENCE
The following information shall be deemed to be incorporated in, and to form part of, this Prospectus:
(1) the Issuer's 2012 and 2011 Annual Reports; and
(2) the Issuer's Half-year Report as at 30 June 2013, in each case together with the accompanying notes and, where applicable, report of the Issuer's external auditors.
Any statement contained in this Prospectus or in any of the documents incorporated by reference in, and forming part of, this Prospectus shall be deemed to be modified or superseded for the purpose of this Prospectus to the extent that a statement contained in any document subsequently incorporated by reference, by way of supplement prepared in accordance with Article 16 of the Prospectus Directive, modifies or supersedes such statement.
The Issuer will provide, without charge to each person to whom a copy of this Prospectus has been delivered, upon the request of such person, a copy of any or all the documents deemed to be incorporated by reference herein. Requests for such documents should be directed to the Issuer at its offices set out at the end of this Prospectus. In addition such documents will be available, without charge, at the specified office of the Listing Agent in Luxembourg and on the website of the Luxembourg Stock Exchange (www.bourse.lu).
The information incorporated by reference that is not included in the following cross-reference list is considered as additional information and is not required by the relevant schedules of Commission Regulation (EC) No. 809/2004 of 29 April 2004 implementing the Prospectus Directive.
Cross-reference list
The following table shows where the information incorporated by reference in this Prospectus can be found in the above-mentioned documents.
2012 Annual Report Page number(s) Consolidated statement of financial position...... 105-106 Consolidated statement of income ...... 107 Consolidated statement of comprehensive income ...... 108 Consolidated statement of cash flows ...... 109 Consolidated statement of changes in equity ...... 110 Consolidated statement of financial position and income according to Consob resolution no. 15519 dated 27 July 2006 ...... 111 Explanatory notes ...... 114-206 General information ...... 114 General drafting criteria and accounting standards for the preparation of the financial statements ...... 114 Summary of significant accounting standards and valuation criteria ...... 115-133 Main company operations and changes in the consolidation area ...... 134-135 Business combination...... 136-137 Segment report ...... 138-143 Notes on the main assets items ...... 144-160 Notes on main liabilities items ...... 161-174 Notes on main statement of income items ...... 175-182 Notes on main cash flow statement items ...... 183 Additional disclosures about financial instruments and risk management policies ...... 184-198 Share-based payments ...... 199-200 Related party transactions ...... 201-202 Commitments ...... 203 List of equity investments included in the consolidated financial statement as at 31 December 2012...... 205 Independent Auditors' Report ...... 211
2011 Annual Report Page number(s) Consolidated statement of financial position...... 105-106 Consolidated statement of income ...... 107 Consolidated statement of comprehensive income ...... 108 Consolidated statement of cash flows ...... 109 Consolidated statement of changes in equity ...... 110 Consolidated statement of financial position and income according to Consob resolution no. 15519 dated 27 July 2006 ...... 111 Explanatory notes ...... 114-203
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General information ...... 114 General drafting criteria and accounting standards for the preparation of the financial statements ...... 114 Summary of significant accounting standards and valuation criteria ...... 115-131 Main company operations and changes in the consolidation area ...... 132-134 Business combination...... 135 Segment report ...... 136-141 Notes on the main assets items ...... 142-158 Notes on main liabilities items ...... 159-171 Notes on main statement of income items ...... 172-178 Notes on main cash flow statement items ...... 179 Additional disclosures about financial instruments and risk management policies ...... 180-193 Share-based payments ...... 194-196 Related party transactions ...... 197-198 Commitments ...... 199 Potential liabilities ...... 200 List of equity investments included in the consolidated financial statement as at 31 December 2011...... 201-202 Independent Auditors' Report ...... 207
Half-year Report as at 30 June 2013 Page number(s) Consolidated balance sheet 26-27 Consolidated income statement 28 Consolidated comprehensive income statement 29 Consolidated cash flow statement 30 Movements in shareholders' equity 31 Explanatory notes 32-53 Review report of external auditors 59
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TERMS AND CONDITIONS OF THE NOTES
The following is the text of the Terms and Conditions of the Notes which (subject to completion and amendment) will be endorsed on each Note in definitive form. The terms and conditions applicable to any Note in global form will differ from those terms and conditions which would apply to Notes in definitive form to the extent described in the next section of this Prospectus entitled "Summary of Provisions relating to the Notes in Global Form".
The €375,000,000 5.125 per cent. Notes due 24 January 2019 (the "Notes", which expression includes any further notes issued pursuant to Condition 13 (Further Issues) and forming a single series therewith) of Mediaset S.p.A. (the "Issuer") are the subject of a fiscal agency agreement dated 24 October 2013 (as amended or supplemented from time to time, the "Agency Agreement") between the Issuer, BNP Paribas Securities Services, Luxembourg Branch as fiscal agent (the "Fiscal Agent", which expression includes any successor fiscal agent appointed from time to time in connection with the Notes) and paying agent (the "Paying Agent" and, together with the Fiscal Agent, the "Paying Agents", which expression includes any successor or additional paying agents appointed from time to time in connection with the Notes). Certain provisions of these Conditions are summaries of the Agency Agreement and are subject to its detailed provisions. The holders of the Notes (the "Noteholders") and the holders of the related interest coupons (the "Couponholders" and the "Coupons", respectively) are bound by, and are deemed to have notice of, all the provisions of the Agency Agreement applicable to them. Copies of the Agency Agreement are available for inspection by Noteholders during normal business hours at the Specified Offices (as defined in the Agency Agreement) of each of the Paying Agents, the initial Specified Offices of which are set out below.
1. Form, Denomination and Title
The Notes are in bearer form in the denominations of €100,000 and integral multiples of €1,000 in excess thereof up to and including €199,000 with Coupons attached at the time of issue. Notes of one denomination will not be exchangeable for Notes of another denomination. Title to the Notes and the Coupons will pass by delivery. The holder of any Note or Coupon shall (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing thereon or any notice of any previous loss or theft thereof) and no person shall be liable for so treating such holder. No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999.
2. Status
The Notes constitute direct, general, unconditional and, subject to the provisions of Condition 3(a) (Negative pledge), unsecured obligations of the Issuer which will at all times rank pari passu among themselves and at least pari passu with all other present and future unsecured obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application.
3. Restrictions
(a) Negative pledge: So long as any Note remains outstanding, the Issuer shall not, and the Issuer shall procure that none of its Material Subsidiaries (as defined below) will, create or permit to subsist any Security Interest (other than a Permitted Security Interest) upon the whole or any part of its present or future undertaking, assets or revenues (including uncalled capital) to secure (i) any Relevant Indebtedness or (ii) any guarantee and/or indemnity in relation to any Relevant Indebtedness, without (x) at the same time or prior thereto securing the Notes equally and rateably therewith or (y) providing such other security for the Notes as may be approved by an Extraordinary Resolution of Noteholders (and the decision to carry out an action under option (x) as opposed to option (y) (or vice versa) shall be decided by the Issuer).
(b) Definitions: In these Conditions:
"control" has the meaning given to it in Article 93 of Italian Legislative Decree No. 58 of 24 February 1998;
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"Controlling Shareholder" means:
(i) Fininvest S.p.A., a company incorporated under the laws of the Republic of Italy and registered at the Companies' Registry (registro delle imprese) of Rome under registration number 03202170589 or any Person controlling Fininvest S.p.A. directly or indirectly from time to time; or
(ii) following the passing of an Extraordinary Resolution of Noteholders that sanctions an event or circumstances that would otherwise constitute a Change of Control for the purposes of Condition 5(c) (Redemption at the option of Noteholders upon a Change of Control), such Person or Persons who, but for such Extraordinary Resolution, would have effected such Change of Control;
"Equity Securities" means any and all shares, warrants, options, rights to purchase, participations or other equivalents of or interests in (however designated) the equity of a Person, including any preferred shares (but excluding any debt securities convertible into or exchangeable for, such equity);
"Extraordinary Resolution" has the meaning given to it in the Agency Agreement;
"Indebtedness" means any indebtedness (whether being principal, premium or interest) of any Person for or in respect of money borrowed or raised including (without limitation) any indebtedness for or in respect of amounts raised under any transaction having the commercial effect of a borrowing;
"Material Subsidiary" means, at any time, any Subsidiary of the Issuer where the revenues or total assets of that Subsidiary on a non-consolidated or, if applicable, consolidated basis, as shown in the most recent audited consolidated or nonconsolidated financial statements of such Subsidiary, represent 10 per cent. or more of the consolidated revenues or consolidated total assets, respectively, of the Issuer, as shown in or calculated by reference to the Issuer's most recent audited consolidated financial statements, provided that only for the purposes of Condition 3(a) (Negative pledge) and Condition 8(c) (Cross-default of Issuer or Material Subsidiary) and, for the avoidance of doubt, not in connection with any of the other Conditions, Material Subsidiary will not include (a) Mediaset España S.A. or any of its Subsidiaries falling within this definition of Material Subsidiary at any time and (b) EI Towers S.p.A. or any its Subsidiaries falling within this definition of Material Subsidiary at any time;
"outstanding" has the meaning given to it in the Agency Agreement;
"Permitted Security Interest" means:
(i) any Security Interest arising by operation of law; or
(ii) any Security Interest created and perfected by the Issuer or any of its Material Subsidiaries and still in existence as at the Issue Date (as defined below); or
(iii) any Security Interest created by any entity upon the whole or any part of its undertaking or assets and subsisting at the time such entity (i) merges or consolidates with or is demerged, contributed or merged into or transferred to the Issuer or a Material Subsidiary, (ii) becomes a Material Subsidiary of the Issuer or (iii) sells, contributes or transfers all or substantially all of its assets to the Issuer or a Material Subsidiary, provided that the amount of Indebtedness secured by such Security Interest is not subsequently increased; or
(iv) any Security Interest to secure Indebtedness incurred by the Issuer or any of its Subsidiaries for the purposes of financing (a) an acquisition by the Issuer or such Subsidiary of all or part of the share capital of another entity and/or of the business of such entity or (b) a merger by such entity with and/or into the Issuer or such Subsidiary, in each case whereby all or substantially all of the proceeds of such financing is used for the purposes of such acquisition or merger,
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provided that the amount of such Indebtedness is not increased at any time following the completion of such acquisition or merger; or
(v) any Security Interest to secure Relevant Indebtedness upon or with respect to any present or future assets, receivables, remittances or payment rights of the Issuer or any of its Material Subsidiaries (the "Charged Assets") which is created pursuant to any securitisation, creation of pools of assets dedicated to specific transactions (patrimoni destinati a uno specifico affare) within the meaning set out under Article 2447 -bis and subsequent of the Italian Civil Code or like arrangements whereby all or substantially all the payment obligations in respect of such Relevant Indebtedness are to be discharged solely from the Charged Assets; or
(vi) any Security Interest created in substitution of or supplementing any Security Interest permitted under paragraphs (ii) to (v) above over the same or substituted assets provided that (1) the principal amount secured by the substitute Security Interest does not exceed the principal amount outstanding and secured by the initial Security Interest, (2) in the case of substituted assets, the market value of the substituted assets as at the time of substitution does not exceed the market value of the assets replaced, as determined and confirmed in writing by the Issuer (acting reasonably), (3) in the case of a Security Interest being supplemented, such supplementing was provided for under the relevant contractual arrangements at the time of creation of the Security Interest and is required to comply with such contractual arrangements, and (4) the duration of the substitute Security Interest does not exceed the duration of the initial Security Interest;
"Person" means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality;
"Relevant Indebtedness" means (i) any Indebtedness, whether present or future, which is in the form of or represented by any bond, note, debenture, debenture stock, loan stock, certificate or other instrument which is, or is capable of being, listed, quoted or traded on any stock exchange, over-the-counter or other organised market for securities or (ii) any guarantee and/or indemnity in relation to any such Indebtedness;
"Security Interest" means any mortgage, charge, pledge, lien or other form of security interest including, without limitation, anything substantially analogous to any of the foregoing under the laws of any applicable jurisdiction;
"Subsidiary" means società controllata, as defined in Article 2359, first and second paragraphs, of the Italian Civil Code; and
"Voting Capital" means, at any particular time, the aggregate amount of votes represented by all classes of outstanding Equity Securities of the Issuer for the purposes of voting at the Issuer's ordinary and extraordinary shareholders' meetings.
4. Interest
The Notes bear interest from 24 October 2013 (the "Issue Date"), at the rate of 5.125 per cent. per annum, (the "Rate of Interest") payable in arrear on 24 January in each year (each, an "Interest Payment Date"); the first payment of interest shall be made on 24 January 2014 (also, an "Interest Payment Date") in respect of the period from (and including) the Issue Date to (but excluding) such Interest Payment Date, all subject as provided in Condition 6 (Payments).
Each Note will cease to bear interest from the due date for redemption unless, upon due presentation, payment of principal is improperly withheld or refused, in which case it will continue to bear interest at such rate (both before and after judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder and (b) the day which is seven days after the Fiscal Agent
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has notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).
The amount of interest payable on the first Interest Payment Date shall be €12.92 per Calculation Amount. The amount of interest on any other Interest Payment Date shall be €51.25. If interest is required to be paid in respect of a Note on any other date, it shall be calculated by applying the Rate of Interest to the Calculation Amount, multiplying the product by the relevant Day Count Fraction and rounding the resulting figure to the nearest cent (half a cent being rounded upwards) and multiplying such rounded figure by a fraction equal to the denomination of such Note divided by the Calculation Amount, where:
"Calculation Amount" means €1,000 in principal amount of Notes;
"Day Count Fraction" means, in respect of any period, the number of days in the relevant period, from (and including) the first day in such period to (but excluding) the last day in such period, divided by the number of days in the Regular Period in which the relevant period falls; and
"Regular Period" means each period from (and including) the Issue Date or any Interest Payment Date to (but excluding) the next Interest Payment Date.
5. Redemption and Purchase
(a) Scheduled redemption: Unless previously redeemed, or purchased and cancelled, the Notes will be redeemed at their principal amount on 24 January 2019, subject as provided in Condition 6 (Payments).
(b) Redemption for tax reasons: The Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days' notice to the Noteholders (which notice shall be irrevocable), at their principal amount, together with interest (if any) accrued to the date fixed for redemption, if:
(i) the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 7 (Taxation) as a result of any change in, or amendment to, the laws or regulations of the Republic of Italy or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after the Issue Date; and
(ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it,
provided, however, that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts if a payment in respect of the Notes were then due.
Prior to the publication of any notice of redemption pursuant to this paragraph, the Issuer shall deliver to the Fiscal Agent:
(A) a certificate signed by two duly authorised officers of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred; and
(B) an opinion of independent legal advisers of recognised standing to the effect that the Issuer has or will become obliged to pay such additional amounts as a result of such change or amendment.
Upon the expiry of any such notice as is referred to in this Condition 5(b), the Issuer shall be bound to redeem the Notes in accordance with this Condition 5(b).
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(c) Redemption at the option of Noteholders upon a Change of Control: In the event of a Change of Control (as defined below), each Noteholder may, during the Change of Control Redemption Period (as defined below), notify the Issuer, as further provided below, that it requires the early redemption of all or some of its Notes (a "Put Event"). The Issuer, will redeem in whole (but not in part) the Notes the subject of such notice from the Noteholders on the Change of Control Redemption Date (as defined below) at their principal amount together with accrued interest thereon from (and including) the preceding Interest Payment date (or the Issue Date, if applicable) to (but excluding) the Change of Control Redemption Date.
Any Change of Control shall be notified to the Noteholders in accordance with Condition 14 (Notices) by the Issuer within five Business Days of its occurrence. Such notice shall also indicate the relevant Change of Control Redemption Period (as defined below) and Change of Control Redemption Date. For so long as the Notes are listed on the regulated market of the Luxembourg Stock Exchange and the rules of such exchange so require, the Issuer shall also notify the Luxembourg Stock Exchange promptly of any Change of Control.
Any such notification will indicate the date of the Change of Control, the period in which the early redemption of the Notes may be requested (the "Change of Control Redemption Period") and the Change of Control Redemption Date. The Change of Control Redemption Period will run for 20 Business Days following the date on which notice of the Change of Control is given to the Noteholders in accordance with Condition 14 (Notices) and, for the purpose of this Condition 5(c), "Change of Control Redemption Date" means the date specified in the notification of Change of Control by the Issuer, being a date not earlier than five nor later than 10 Business Days after expiry of the Change of Control Redemption Period.
In order to exercise the option contained in this Condition 5 (c), the holder of a Note must, on any Business Day during the Change of Control Redemption Period, deposit with any Paying Agent such Note together with all unmatured Coupons relating thereto and a duly completed put option notice (a "Put Option Notice") in the form obtainable from any Paying Agent. The Paying Agent with which a Note is so deposited shall deliver a duly completed receipt for such Note (a "Put Option Receipt") to the depositing Noteholder. No Note, once deposited with a duly completed Put Option Notice in accordance with this Condition 5 (c), may be withdrawn; provided, however, that if, prior to the Change of Control Redemption Date, any such Note becomes immediately due and payable or, upon due presentation of any such Note on the Change of Control Redemption Date, payment of the redemption moneys is improperly withheld or refused, the relevant Paying Agent shall give notification thereof to the depositing Noteholder in such manner and/or at such address as may have been given by such Noteholder in the relevant Put Option Notice and shall hold such Note at its Specified Office for collection by the depositing Noteholder against surrender of the relevant Put Option Receipt. For so long as any outstanding Note is held by a Paying Agent in accordance with this Condition 5 (c), the depositor of such Note and not such Paying Agent shall be deemed to be the holder of such Note for all purposes.
As used in this Condition 5(c):
(i) a "Change of Control" shall be deemed to occur if:
(A) any Person or group of Persons acting in concert, other than a Controlling Shareholder, at any time holds or obtains a higher percentage of the Issuer's Voting Capital than that held by the Controlling Shareholder (a "Voting Capital Event"); and
(B) at any time following a Voting Capital Event, the Controlling Shareholder ceases to hold sufficient Voting Capital of the Issuer such as to enable it to appoint a majority of the members of the Board of Directors of the Issuer at the Issuer's ordinary and extraordinary shareholders' meetings,
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provided, however, that no Change of Control shall be deemed to have occurred where Noteholders have, by way of Extraordinary Resolution, given their prior approval of the holding or obtaining by such Person or Persons of such percentage of the Issuer's Voting Capital, in which case references in these Conditions to "Controlling Shareholder" shall be read as references to such Person or Persons; and
(ii) "acting in concert" means pursuant to an agreement, arrangement or understanding, whereby two or more Persons co-operate, through the acquisition or holding of Equity Securities of an entity by any of them, either directly or indirectly, for the purposes of obtaining or consolidating control of such entity;
(d) No other redemption: The Issuer shall not be entitled to redeem the Notes otherwise than as provided in Conditions 5 (a) (Scheduled Redemption) to (c) (Redemption at the option of Noteholders upon a Change of Control) above.
(e) Purchase: The Issuer or any of its Subsidiaries may at any time purchase Notes in the open market or otherwise and at any price, provided that all unmatured Coupons are purchased therewith.
(f) Cancellation: All Notes so redeemed or purchased by the Issuer or any of its Subsidiaries and any unmatured Coupons attached to or surrendered with them shall be cancelled and may not be reissued or resold.
6. Payments
(a) Principal: Payments of principal shall be made only against presentation and (provided that payment is made in full) surrender of Notes at the Specified Office of any Paying Agent outside the United States by transfer to a Euro account (or other account to which Euro may be credited or transferred) maintained by the payee with, a bank in a city in which banks have access to the TARGET System.
(b) Interest: Payments of interest shall, subject to Condition 6 (g) (Payments other than in respect of matured Coupons) below, be made only against presentation and (provided that payment is made in full) surrender of the appropriate Coupons at the Specified Office of any Paying Agent outside the United States in the manner described in Condition 6 (a) (Principal) above.
(c) Interpretation: In these Conditions:
(i) "TARGET Settlement Day" means any day on which the TARGET System is open for the settlement of payments in euro; and
(ii) "TARGET System" means the Trans-European Automated Real-Time Gross Settlement Express Transfer payment system (TARGET2) which utilises a single shared platform and which was launched on 19 November 2007.
(d) Payments subject to fiscal laws: All payments in respect of the Notes are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 7 (Taxation). No commissions or expenses shall be charged by or on behalf of the Issuer or any of its agents to the Noteholders or Couponholders in respect of such payments.
(e) Deduction for unmatured Coupons: If a Note is presented without all unmatured Coupons relating thereto, then:
(i) if the aggregate amount of the missing Coupons is less than or equal to the amount of principal due for payment, a sum equal to the aggregate amount of the missing Coupons will be deducted from the amount of principal due for payment, provided, however, that if the gross amount available for payment is less than the amount of principal due for payment, the sum deducted will be that proportion of the aggregate amount of such missing Coupons which the gross
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amount actually available for payment bears to the amount of principal due for payment;
(ii) if the aggregate amount of the missing Coupons is greater than the amount of principal due for payment:
(A) so many of such missing Coupons shall become void (in inverse order of maturity) as will result in the aggregate amount of the remainder of such missing Coupons (the "Relevant Coupons") being equal to the amount of principal due for payment, provided, however, that where this sub-paragraph would otherwise require a fraction of a missing Coupon to become void, such missing Coupon shall become void in its entirety; and
(B) a sum equal to the aggregate amount of the Relevant Coupons (or, if less, the amount of principal due for payment) will be deducted from the amount of principal due for payment, provided, however, that, if the gross amount available for payment is less than the amount of principal due for payment, the sum deducted will be that proportion of the aggregate amount of the Relevant Coupons (or, as the case may be, the amount of principal due for payment) which the gross amount actually available for payment bears to the amount of principal due for payment.
Each sum of principal so deducted shall be paid in the manner provided in Condition 6 (a) Principal) above against presentation and (provided that payment is made in full) surrender of the relevant missing Coupons. No payments will be made in respect of void coupons.
(f) Payments on business days: If the due date for payment of any amount in respect of any Note or Coupon is not a business day in the place of presentation, the holder shall not be entitled to payment in such place of the amount due until the next succeeding business day in such place and shall not be entitled to any further interest or other payment in respect of any such delay. In this paragraph, "business day" means, in respect of any place of presentation, any day on which banks are open for presentation and payment of bearer debt securities and for dealings in foreign currencies in such place of presentation and, in the case of payment by transfer to a Euro account as referred to above, on which the TARGET System is open and on which commercial banks and foreign exchange markets settle payments generally in London and Milan.
(g) Payments other than in respect of matured Coupons: Payments of interest other than in respect of matured Coupons shall be made only against presentation of the relevant Notes at the Specified Office of any Paying Agent outside the United States.
(h) Partial payments: If a Paying Agent makes a partial payment in respect of any Note or Coupon presented to it for payment, such Paying Agent will endorse thereon a statement indicating the amount and date of such payment.
7. Taxation
(a) Gross-up: All payments of principal and interest in respect of the Notes and the Coupons by or on behalf of the Issuer shall be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Republic of Italy or any political subdivision thereof or any authority therein or thereof having power to tax, unless the withholding or deduction of such taxes, duties, assessments or governmental charges is required by law. In that event the Issuer shall pay such additional amounts as will result in receipt by the Noteholders and the Couponholders after such withholding or deduction of such amounts as would have been received by them had no such withholding or deduction
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been required, except that no such additional amounts shall be payable in respect of any Note or Coupon presented for payment:
(i) in the Republic of Italy; or
(ii) by or on behalf of a holder which is liable to such taxes, duties, assessments or governmental charges in respect of such Note or Coupon by reason of its having some connection with the Republic of Italy other than the mere holding of the Note or Coupon; or
(iii) in relation to any payment or deduction of any interest, principal or other proceeds of any Note or Coupon on account of imposta sostitutiva, pursuant to Italian Legislative Decree No. 239 of 1 April 1996 ("Decree No. 239") and related implementing regulations, as amended, supplemented or re-enacted from time to time; or
(iv) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or
(v) by or on behalf of a holder who would have been able to avoid such withholding or deduction by (A) presenting the relevant Note or Coupon to another Paying Agent in a member state of the European Union or (B) making a declaration of non-residence or other similar claim for an exemption; or
(vi) in each case, in which the formalities to obtain an exemption from imposta sostitutiva under Decree No. 239 have not been complied with, except where such formalities have not been complied with due to the actions or omissions of the Issuer or its agents; or
(vii) more than 30 days after the Relevant Date except to the extent that the holder of such Note or Coupon would have been entitled to such additional amounts on presenting such Note or Coupon for payment on the last day of such period of 30 days.
In these Conditions, "Relevant Date" means whichever is the later of (1) the date on which the payment in question first becomes due and (2) if the full amount payable has not been received in a city in which banks have access to the TARGET System by the Fiscal Agent on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Noteholders.
Any reference in these Conditions to principal or interest shall be deemed to include any additional amounts in respect of principal or interest (as the case may be) which may be payable under this Condition 7 (Taxation).
(b) Taxing jurisdiction: If the Issuer becomes subject at any time to any taxing jurisdiction other than the Republic of Italy, references in these Conditions to the Republic of Italy shall be construed as references to the Republic of Italy and/or such other jurisdiction.
8. Events of Default
If any of the following events occurs:
(a) Non-payment: the Issuer fails to pay any amount of principal or interest in respect of the Notes on the due date for payment thereof and such failure continues for a period of 10 days; or
(b) Breach of other obligations: the Issuer defaults in the performance or observance of any of its other obligations under or in respect of the Notes under these Conditions (being obligations other than payment obligations to which Condition 8(a) (Non-payment) applies) and such default remains unremedied for 30 days after written
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notice thereof, addressed to the Issuer by any Noteholder, has been delivered to the Issuer or to the Specified Office of the Fiscal Agent; or
(c) Cross-default of Issuer or Material Subsidiary:
(i) any Indebtedness of the Issuer or any of its Material Subsidiaries is not paid when due or (as the case may be) within any originally applicable grace period;
(ii) any such Indebtedness becomes (or becomes capable of being declared) due and payable by reason of default prior to its stated maturity; or
(iii) the Issuer or any of its Material Subsidiaries fails to pay when due, or within any originally applicable grace period, any amount payable by it under any guarantee and/or indemnity given by it in relation to any Indebtedness;
unless such payment (or the anticipated maturity thereof) or default, as the case may be, is contested in good faith by the Issuer or the relevant Material Subsidiary by all appropriate means, including (where applicable) an application to a competent court for a declaration that such payments is not due and/or such default has not occurred (as the case may be) and provided that the amount of Indebtedness referred to in sub-paragraph (i) and/or sub-paragraph (ii) above and/or the amount payable under any guarantee and/or indemnity referred to in sub-paragraph (iii) above individually or in the aggregate exceeds €15,000,000 (or its equivalent in any other currency or currencies); or
(d) Unsatisfied judgment: one or more judgment(s) or order(s), from which no further appeal or judicial review is permissible under applicable law, for the payment of an amount in excess of €20,000,000 (or its equivalent in any other currency or currencies), whether individually or in aggregate, is rendered against the Issuer or any of its Material Subsidiaries and continue(s) unsatisfied and unstayed for a period of 30 days after the date(s) thereof or, if later, the date therein specified for payment; or
(e) Security enforced: a secured party takes possession, or a receiver, manager or other similar officer is appointed, of the whole or any substantial part of the undertaking, assets and revenues of the Issuer or any of its Material Subsidiaries; or
(f) Insolvency, etc: (i) the Issuer or any of its Material Subsidiaries becomes insolvent or is unable to pay its debts as they fall due, (ii) an administrator or liquidator of the Issuer or any of its Material Subsidiaries or the whole or any part of the undertaking, assets and revenues of the Issuer or any of its Material Subsidiaries is appointed (or application for any such appointment is made and such application is not contested in good faith by all appropriate means by the Issuer or the relevant Material Subsidiary within 30 days from the date of such application) in connection with any insolvency proceeding or (iii) the Issuer or any of its Material Subsidiaries takes any action for a readjustment or deferment of any of its obligations or makes a general assignment or an arrangement or composition with or for the benefit of its creditors or declares a moratorium in respect of any of its Indebtedness or any guarantee and/or indemnity given by it in relation to any Indebtedness given by it;
(g) Cessation of business: the Issuer or any of its Material Subsidiaries ceases or threatens to cease to carry on all or substantially the whole of its business (otherwise than for the purposes of, or pursuant to, a Permitted Reorganisation) ) provided that the occurrence of a Put Event listed under Condition 5(c) (Redemption and Purchase – Redemption at the option of Noteholders upon a Change of Control) will not trigger the Event of Default under this Condition 8(g);
(h) Winding up, etc: an order is made by any competent court or an effective resolution is passed for the winding up, liquidation or dissolution of the Issuer or any of its Material Subsidiaries (otherwise than for the purposes of, or pursuant to, a Permitted Reorganisation or pursuant to the solvent liquidation of any of its Material Subsidiaries); or
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(i) Analogous event: any event occurs which under the laws of the Republic of Italy has an analogous effect to any of the events referred to in paragraphs (d) (Unsatisfied judgment) to (h) (Winding up, etc.) above; or
(j) Unlawfulness: it is or will become unlawful for the Issuer to perform or comply with any of its obligations under or in respect of the Notes or the Agency Agreement or any such obligations cease or will cease to be legal, valid, binding and enforceable unless the matter giving rise to such unlawfulness is remedied within 60 days of its occurrence,
then any Note may, by written notice addressed by the holder thereof to the Issuer and delivered to the Issuer or to the Specified Office of the Fiscal Agent, be declared immediately due and payable, whereupon it shall become immediately due and payable at its principal amount together with accrued interest without further action or formality.
As used herein, "Permitted Reorganisation" means any "fusione" or "scissione" (such expressions bearing the meanings ascribed to them by the laws of the Republic of Italy) or any other reconstruction, amalgamation, reorganisation, merger, consolidation, or other similar arrangement, in each case (i) on terms approved by an Extraordinary Resolution of the Noteholders or (ii) in the case of a Material Subsidiary, whilst solvent whereby the assets and undertaking of such Material Subsidiary are transferred to or otherwise vested in the Issuer or another Subsidiary of the Issuer.
9. Prescription
Claims for principal shall become void unless the relevant Notes are presented for payment within ten years of the appropriate Relevant Date. Claims for interest shall become void unless the relevant Coupons are presented for payment within five years of the appropriate Relevant Date.
10. Replacement of Notes and Coupons
If any Note or Coupon is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the Specified Office of the Fiscal Agent, subject to all applicable laws and stock exchange requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may reasonably require. Mutilated or defaced Notes or Coupons must be surrendered before replacements will be issued.
11. Paying Agents
In acting under the Agency Agreement and in connection with the Notes and the Coupons, the Paying Agents act solely as agents of the Issuer and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders or Couponholders.
The initial Paying Agents and their initial Specified Offices are listed below. The Issuer reserves the right at any time to vary or terminate the appointment of any Paying Agent and to appoint a successor fiscal agent and additional or successor paying agents; provided, however, that the Issuer shall at all times maintain (a) a fiscal agent, (b) for so long as the Notes are listed on the Luxembourg Stock Exchange, a paying agent in Luxembourg and (c) a paying agent in an EU member state that will not be obliged to withhold or deduct tax pursuant to any law implementing European Council Directive 2003/48/EC.
Notice of any change in any of the Paying Agents or in their Specified Offices shall promptly be given to the Noteholders.
12. Meetings of Noteholders; Noteholders' Representative; Modification
(a) Meetings of Noteholders: The Agency Agreement contains provisions for convening meetings of Noteholders to consider matters relating to the Notes, including the modification of any provision of these Conditions. Any such modification may be made if sanctioned by an Extraordinary Resolution.
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In relation to the convening of meetings, quorums and the majorities required to pass an Extraordinary Resolution, the following provisions shall apply in respect of the Notes but are subject to compliance with mandatory laws, legislation, rules and regulations of Italy in force from time to time and, where applicable Italian law so requires, the Issuer's By-laws:
(i) a meeting of Noteholders may be convened by the Issuer and/or the Noteholders' Representative (as defined below) and shall be convened by either of them upon the request in writing of Noteholders holding not less than one-twentieth of the aggregate principal amount of the outstanding Notes;
(ii) a meeting of Noteholders will be validly held (subject to any mandatory laws, legislation, rules and regulations of Italian law, as well as the Issuer’s by-laws, in force from time to time) if: (a) in respect of a meeting convened to pass a resolution relating to a Reserved Matter, there are one or more persons present being or representing Noteholders holding at least one-half of the aggregate principal amount of the outstanding Notes; or (b) in respect of a meeting convened to pass a resolution that does not relate to a Reserved Matter, (i) in the case of a sole meeting (convocazione unica), there are one or more persons being or representing Noteholders holding at least one-fifth of the aggregate principal amount of the outstanding Notes, (ii) in the case of a first meeting, there are one or more persons present being or representing Noteholders holding at least one-half of the aggregate principal amount of the outstanding Notes, (iii) in the case of a second meeting, there are one or more persons present being or representing Noteholders holding more than one-third of the aggregate principal amount of the outstanding Notes or (iv) in the case of any subsequent adjourned meeting, there are one or more persons present being or representing Noteholders holding at least one-fifth of the aggregate principal amount of the outstanding Notes; provided that the Issuer’s by-laws may in each case (to the extent permitted under the applicable laws and regulations of the Republic of Italy) provide for a higher quorum; and
(iii) the majority required to pass a resolution at any meeting (including, where applicable, any adjourned meeting) convened to vote on any resolution (subject to any mandatory laws, legislation, rules and regulations of Italian law, as well as the Issuer’s by-laws, in force from time to time) will be (a) for voting on any matter other than a Reserved Matter, one or more persons holding or representing at least two-thirds of the aggregate principal amount of the outstanding Notes represented at the meeting or (b) for voting on a Reserved Matter, the higher of (i) one or more persons holding or representing not less than one half of the aggregate principal amount of the outstanding Notes, and (ii) one or more persons holding or representing not less than two thirds of the Notes represented at the meeting, provided that, to the extent permitted under applicable provisions of Italian law, the Issuer’s by-laws may in each case provide for higher majorities. Any resolution duly passed at any such meeting shall be binding on all the Noteholders, whether or not they are present at the meeting and on all Couponholders.
In this Condition 12, "Reserved Matter" has the meaning given to it in the Agency Agreement.
(b) Noteholders' Representative: Pursuant to Articles 2415 and 2417 of the Italian Civil Code, a representative of the Noteholders (rappresentante comune or "Noteholders' Representative") may be appointed, inter alia, to represent the interests of Noteholders, such appointment to be made by an Extraordinary Resolution or by an order of a competent court at the request of one or more Noteholders or the Issuer. Each such Noteholders' Representative shall have the powers and duties set out in Article 2418 of the Italian Civil Code.
(c) Modification: The Notes and these Conditions may be amended without the consent of the Noteholders or the Couponholders to correct a manifest error. In addition, the parties
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to the Agency Agreement may agree to modify any provision thereof, but the Issuer shall not agree, without the consent of the Noteholders, to any such modification unless it is of a formal, minor or technical nature, it is made to correct a manifest error or it is, in the opinion of such parties, not materially prejudicial to the interests of the Noteholders.
13. Further Issues
The Issuer may from time to time, without the consent of the Noteholders or the Couponholders, create and issue further notes having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest) so as to form a single series with the Notes.
14. Notices
Notices to the Noteholders shall be valid if published in a reputable leading English language daily newspaper published in London with an international circulation and, for so long as the Notes are admitted to trading on the regulated market of the Luxembourg Stock Exchange and it is a requirement of applicable laws and regulations, a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the website of the Luxembourg Stock Exchange (www.bourse.lu) or, in either case, if such publication is not practicable, in a leading English language daily newspaper having general circulation in Europe. Any such notice shall be deemed to have been given on the date of first publication. Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the Noteholders.
15. Governing Law and Jurisdiction
(a) Governing law: The Notes and any non-contractual obligations arising out of or in connection with the Notes are governed by English law.
(b) English courts: The courts of England have exclusive jurisdiction to settle any dispute (a "Dispute") arising out of or in connection with the Notes (including any non-contractual obligation arising out of or in connection with the Notes).
(c) Appropriate forum: The Issuer agrees that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that it will not argue to the contrary.
(d) Rights of the Noteholders to take proceedings outside England: Condition 15 (b) (English courts) is for the benefit of the Noteholders only. As a result, nothing in this Condition 15 (Governing law and jurisdiction) prevents any Noteholder from taking proceedings relating to a Dispute ("Proceedings") in any other courts with jurisdiction. To the extent allowed by law, Noteholders may take concurrent Proceedings in any number of jurisdictions.
(e) Process agent: The Issuer agrees that the documents which start any Proceedings and any other documents required to be served in relation to those Proceedings may be served on it by being delivered to The Italian Chamber of Commerce and Industry for the United Kingdom at 1 Princes Street, London W1B 2AY or at any address of the Issuer in Great Britain at which process may be served on it in accordance with Parts 34 and 37 of the Companies Act 2006. If such person is not or ceases to be effectively appointed to accept service of process on behalf of the Issuer, the Issuer shall, on the written demand of any Noteholder addressed to the Issuer and delivered to the Issuer or to the Specified Office of the Fiscal Agent appoint a further person in England to accept service of process on its behalf and, failing such appointment within 15 days, any Noteholder shall be entitled to appoint such a person by written notice addressed to the Issuer and delivered to the Issuer or to the Specified Office of the Fiscal Agent. Nothing in this paragraph shall affect the right of any Noteholder to serve process in any other manner permitted by law. This Condition applies to Proceedings in England and to Proceedings elsewhere.
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There will appear at the foot of the Conditions endorsed on each Note in definitive form the names and Specified Offices of the Paying Agents as set out at the end of this Prospectus.
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SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM
The following is a summary of the provisions to be contained in the Temporary Global Note and the Permanent Global Note (together, the "Global Notes") which will apply to, and in some cases modify, the Terms and Conditions of the Notes while the Notes are represented by the Global Notes.
The Notes will initially be in the form of the Temporary Global Note which will be deposited on or around the Closing Date with a common safekeeper for Euroclear and Clearstream, Luxembourg.
The Notes will be issued in new global note ("NGN") form. On 13 June 2006, the European Central Bank (the "ECB") announced that Notes in NGN form are in compliance with the "Standards for the use of EU securities settlement systems in ESCB credit operations" of the central banking system for the euro (the "Eurosystem"), provided that certain other criteria are fulfilled. At the same time the ECB also announced that arrangements for Notes in NGN form will be offered by Euroclear and Clearstream, Luxembourg as of 30 June 2006 and that debt securities in global bearer form issued through Euroclear and Clearstream, Luxembourg after 31 December 2006 will only be eligible as collateral for Eurosystem operations if the NGN form is used.
The Notes are intended to be held in a manner which would allow Eurosystem eligibility - that is, in a manner which would allow the Notes to be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem either upon issue or at any or all times during their life. Such recognition will depend upon satisfaction of the Eurosystem eligibility criteria.
The Temporary Global Note will be exchangeable in whole or in part for interests in the Permanent Global Note not earlier than 40 days after the Closing Date upon certification as to non-U.S. beneficial ownership. No payments will be made under the Temporary Global Note unless exchange for interests in the Permanent Global Note is improperly withheld or refused. In addition, interest payments in respect of the Notes cannot be collected without such certification of non-U.S. beneficial ownership.
The Permanent Global Note will become exchangeable in whole, but not in part, for Notes in definitive form ("Definitive Notes") in the denomination of €100,000 and integral multiples of €1,000 in excess thereof, up to and including €199,000, at the request of the bearer of the Permanent Global Note if (a) Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business or (b) any of the circumstances described in Condition 8 (Events of Default) occurs.
So long as the Notes are represented by a Global Note and the relevant clearing system(s) so permit, the Notes will be tradeable only in the minimum authorised denomination of €100,000 and higher integral multiples of €1,000, notwithstanding that no Definitive Notes will be issued with a denomination above €199,000.
Whenever the Permanent Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Notes, duly authenticated and with Coupons attached (in respect of interest which has not already been paid in full on the Permanent Global Note), in an aggregate principal amount equal to the principal amount of the Permanent Global Note to the bearer of the Permanent Global Note against the surrender of the Permanent Global Note to or to the order of the Fiscal Agent within 30 days of the bearer requesting such exchange.
If:
(i) Definitive Notes have not been delivered by 5.00 p.m. (London time) on the thirtieth day after the bearer has duly requested exchange of the Permanent Global Note for Definitive Notes; or
(ii) the Permanent Global Note (or any part of it) has become due and payable in accordance with the Conditions or the date for final redemption of the Notes has occurred and, in either case, payment in full of the amount of principal falling due with all accrued interest thereon has not been made to the bearer in accordance with the terms of the Permanent Global Note on the due date for payment, then the Permanent Global Note (including the obligation to deliver Definitive Notes) will become void at 5.00 p.m. (London time) on such thirtieth day (in the case of (a) above) or at 5.00 p.m. (London time) on such due date (in the case of (b) above) and the bearer of the Permanent Global Note will have no further
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rights thereunder (but without prejudice to the rights which the bearer of the Permanent Global Note or others may have under a deed of covenant dated 24 October 2013 (the "Deed of Covenant") executed by the Issuer). Under the Deed of Covenant, persons shown in the records of Euroclear and/or Clearstream, Luxembourg as being entitled to an interest in the Permanent Global Note will acquire directly against the Issuer all those rights to which they would have been entitled if, immediately before the Permanent Global Note became void, they had been the holders of Definitive Notes in an aggregate principal amount equal to the principal amount of Notes they were shown as holding in the records of Euroclear and/or (as the case may be) Clearstream, Luxembourg.
In addition, the Global Notes will contain provisions which modify the Terms and Conditions of the Notes as they apply to the Global Notes. The following is a summary of certain of those provisions:
Payments: All payments in respect of the Temporary Global Note and the Permanent Global Note will be made against presentation and (in the case of payment of principal in full with all interest accrued thereon) surrender of the Temporary Global Note or (as the case may be) the Permanent Global Note to or to the order of any Paying Agent and will be effective to satisfy and discharge the corresponding liabilities of the Issuer in respect of the Notes. On each occasion on which a payment of principal or interest is made in respect of the Temporary Global Note or (as the case may be) the Permanent Global Note, the Issuer shall procure that the payment is noted in a schedule thereto.
Payments on business days: In the case of all payments made in respect of the Temporary Global Note and the Permanent Global Note "business day" means any day on which the TARGET System is open.
Exercise of put options: In order to exercise the options contained in Condition 5(c) (Redemption at the option of Noteholders upon Change of Control) and Condition 5 (d) (Redemption at the option of Noteholders upon certain issues of Relevant Indebtedness by Telecinco or a Telecinco Material Subsidiary) the bearer of the Permanent Global Note must, within the period specified in the Conditions for the deposit of the relevant Note and put notice, give written notice of such exercise to the Fiscal Agent specifying the principal amount of Notes in respect of which such option is being exercised. Any such notice will be irrevocable and may not be withdrawn.
Notices: Notwithstanding Condition 14 (Notices), while all the Notes are represented by the Permanent Global Note and/or the Temporary Global Note, notices to Noteholders may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg and, in any case, such notices shall be deemed to have been given to the Noteholders in accordance with Condition 14 (Notices) on the date of delivery to Euroclear and Clearstream, Luxembourg, except that, for so long as such Notes are admitted to trading on the Luxembourg Stock Exchange and it is a requirement of applicable law or regulations, such notices shall be published in a leading newspaper having general circulation in Luxembourg (which is expected to be Luxemburger Wort) or published on the website of the Luxembourg Stock Exchange (www.bourse.lu).
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DESCRIPTION OF THE ISSUER
INTRODUCTION
Mediaset S.p.A. ("Mediaset" or the "Issuer") is incorporated in Italy as a joint stock company (società per azioni) and is registered at the Companies' Register of Milan under registration number 09032310154.
Its registered office is at Via Paleocapa no. 3, 20121 Milan, Italy and the telephone number of its registered office is +39 02 25149588.
The Issuer (formerly named Futura Finanziaria S.r.l.) was incorporated on 26 November 1987. Pursuant to its by-laws, its duration is until 31 December 2050, unless such term is subsequently extended in accordance with the applicable laws of Italy.
The Issuer's shares are listed on the Mercato Telematico Azionario of the Italian Stock Exchange.
Mediaset is the parent company of the Mediaset Group (the "Mediaset Group" or the "Group"), which is Italy's leading commercial broadcaster in terms of audience share4 and advertising revenues5. Through the Group's majority ownership of the Spanish television group Mediaset España S.A. ("Mediaset España"), the Group is one of Spain's leading commercial broadcasters in terms of audience share and advertising revenue.
The tables below summarise the Mediaset Group financial performance for the financial years ended on 31 December 2011 and 31 December 2012, and for the first half years ended on 30 June 2012 and 30 June 2013.
Operating Net Net Profit (*) Group Net financial Revenues EBIT Profit Position (**)
(Euro millions) 31 December 2011 ...... 4,250.2 538.7 225.0 (1,775.5) 31 December 2012 ...... 3,720.7 (235.4) (287.1) (1,712.8) Operating Net Net Profit(*) Group Net financial Revenues EBIT Profit Position (**)
(Euro millions) 30 June 2012(***) ...... 1,999.3 145.6 42.8 (1,696.1) 30 June 2013 ...... 1,737.0 133.6 30.1 (1,536.4) ______(*) Operating Profit is obtained by deducting personnel expenses, purchases services and other costs, amortisation, depreciation and write-downs from net consolidated revenues.
(**) Net financial position consists of the gross financial debt reduced by cash and other cash equivalents and other current financial securities, assets and receivables.
(***) Operating profit and group net profit restated in order to take into account, retroactively the impact of the final purchase price allocation of the business combination between the "Tower" businesses owned by the Mediaset Group and the DMT Group as reported on in the consolidated financial statements at 31 December 2012.
HISTORY AND DEVELOPMENT
The Mediaset Group's origins date back to 1978 with the formation of the privately owned, local Milan- based television channel, Telemilano. Following a series of acquisitions of other local area television stations, Telemilano became part of Canale 5, which became a leading nationally broadcast television network.
By 1984, the Group's predecessor company acquired both Italia 1 and Retequattro to establish R.T.I. S.p.A. ("RTI") comprised of three national analogue television channels, supported by an advertising sales company, Publitalia '80 S.p.A. ("Publitalia"), which exclusively collects advertising for all three
4Source: Auditel. 5 Source: AGB Nielsen.
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channels, and two other companies, Videotime S.p.A. ("Videotime"), which manages TV technology and production activities, and Elettronica Industriale S.p.A. ("Elettronica Industriale") which guarantees signal distribution through the management of the broadcasting infrastructure.
In 1996, RTI, Videotime, Publitalia and Elettronica Industriale were consolidated within a single group, Mediaset, which was listed on the Milan stock exchange.
The following table sets out important events that have occurred since the formation of Mediaset:
1997 Mediaset expands outside Italy with the acquisition of a 25 per cent. stake in the Spanish broadcaster, Gestevisión Telecinco, S.A. ("Telecinco").
1999 The Group expands its web-based activities with Mediaset.it, a television portal dedicated to Canale 5, Italia 1 and Retequattro, and TgCom, a daily online news service accessible from a range of media.
2003 Mediaset increases its equity interest and becomes Telecinco's majority shareholder owning 50.1 per cent. of its shares. In 2004, the Spanish TV company is listed on the Madrid stock exchange.
2004 With the debut in Italy of digital terrestrial television (i.e., an innovative signal broadcasting system that uses standard aerials and a small set-top box), Mediaset launches Boing, a dedicated channel for children, and MediaShopping, a shopping channel.
2005 The Group launches Mediaset Premium, a pay per view digital terrestrial television service that offers viewers live Series A football, that can be purchased with a pre-paid card and without a subscription. Mediaset Premium pay-per-view offer also includes films (including first TV-screenings), theatre and live events.
2006 Mediaset builds Europe's first digital terrestrial Mobile TV network using DVB-H (Digital Video Broadcast Handheld) technology.
2007 Mediaset makes a series of important acquisitions as part of its plan to expand its media operations internationally and become a leading media content producer and distributor in Europe. In particular:
in a consortium with Cyrte Fund and Goldman Sachs, the Group purchases a controlling interest in Endemol B.V. ("Endemol"), the Dutch production company and world format leader, from Telefónica S.A.;
the Group buys Medusa Film S.p.A. ("Medusa"), Italy's leading film production and distribution company;
the Group reaches an agreement for the acquisition in 2008 of Taodue S.r.l. ("Taodue"), a leading Italian producer of high-quality TV drama;
the Group also launches a new free digital terrestrial channel, Iris, featuring auteur cinema, music, literature and theatre.
2008 Mediaset continues to expand its media offering and geographical reach. In particular:
Mediaset creates Premium Gallery, a new pay tv digital terrestrial content offer available with a pre-paid card, which offers three different programming packages as well as access to TV series and films from Time Warner and NBC-Universal;
Telecinco enters the North American market with the acquisition of a 29.2 per cent. stake in Caribevision, a U.S. broadcaster for the country's Spanish- speaking population;
the Premium Gallery offering is enriched by the Disney Channel and Premium
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Calcio 24 (i.e., a football-dedicated channel) and further improved with the launch of Premium Fantasy, including four channels dedicated to children and teenagers;
Mediaset acquires a 25 per cent. equity interest in Nessma SA, 50 per cent. owned by Karoui&Karoui World and 25 per cent. owned by PrimaTV S.p.A.. This group operates through Nessma Tv, a satellite channel based in Tunis broadcasting also in the Mediterranean region of Europe and representing the first ranking entertainment channel specifically devoted to the Mediterranean Arab universe; and
Medusa and Taodue enter into a joint venture, Med Due S.r.l., aimed at the creation of an Italian production unit able to compete with the main international movie studios (such as Warner Bros and Universal). The shareholders of the production company receive in exchange a 25 per cent. stake in the new company while the remaining controlling stake is held by RTI.
2009 The Issuer continues the growth of its media offering and reach. In particular:
the Issuer launches Premium Cinema and re-launches Studio Universal, representing two 24-hour offers of high-quality film productions;
the Issuer launches TivùSat, Italy's first free digital satellite platform, built by Tivù S.r.l., a company jointly owned by Rai (48.25 per cent.), Mediaset (48.25 per cent.) and Telecom Italia Media (3.5 per cent.). TivùSat is a complementary platform to the existing digital terrestrial platform, and is able to reach areas of the country not covered by the terrestrial networks;
in July, Publitalia and Mondadori Pubblicità S.p.A. ("Mondadori Pubblicità") (advertising concessionary firm of the Mondadori Group) found a joint company, Mediamond S.p.A. ("Mediamond") in charge of managing the sale of all advertising space, based on licence or sub-licence agreements, available on the websites of the Mondadori Group, RTI and third party publishers, currently under concession to Mondadori Pubblicità and Digitalia '08 S.r.l. and, in general, on-line advertising sales also on behalf of third party publishers with the objective of gaining a significant share of the on-line advertising market in Italy in a short space of time;
in July, following a tender procedure, RTI is awarded the rights of transmission with an exclusive pay-tv national DTT broadcast (and re- transmission on IPTV and Internet) of Serie A Italian football matches relating to twelve clubs for the 2010-2011 and 2011-2012 seasons;
in November, Mediaset Premium launches Premium on Demand, a new feature in Italian television, consisting of a digital library of movies and tv series available on demand to its users and updated on a daily basis.
2010 In January, the Issuer completes the issuance of an unrated bond issue placed with qualified investors, for an aggregate amount equal to Euro 300 million, a term of seven years and with a coupon of 5 per cent..
The Issuer continues the expansion of its media offering. In particular:
in January, the Issuer sets up the new online video section of www.video.mediaset.it on the Mediaset.it portal, in order to provide its users with complete full screen tv programmes and give them full access to the best programmes available on Mediaset channels;
in March, the Issuer establishes NewsMediaset, an internal press agency
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providing images, news and services for all of Mediaset's news structures;
in May, the Issuer: (i) launches La5, a new 24 hour free digital terrestrial channel, dedicated to a (mainly) female audience; (ii) launches Premium Cinema HD, a channel broadcasting exclusive previews of films in high definition ("HD"); and (iii) secures a package of over 500 films put up for auction by the official receiver of Finmavi S.p.A., the former company of Vittorio Cecchi Gori;
in August, the Issuer: (i) launches "Premium Cam Mediaset", a device available in both the standard and HD versions, which allows televisions with an integrated decoder to receive the content and services of Mediaset Premium without any external connection; and (ii) broadens its media platform by making both its news services, TgCom and Sportmediaset available on Apple and Android tablet devices; and
starting from October, Mediaset Premium broadcasts HD movies in 3D on demand.
In October, RTI acquires a 25 per cent. stake in Med Due S.r.l., which fully owns Medusa and Taodue. As a consequence of this operation, the Mediaset Group's total stake in Med Due S.r.l. at 31 December 2010 reaches 100 per cent. Subsequently, in February 2011, Med Due S.r.l. is merged into RTI.
In November, the Issuer launches Mediaset Extra, a new free thematic channel (i.e., a channel mainly aimed at an audience that is interested in specific topics).
As to the Group's Spanish activities, in December, further to the authorisation granted in October by the Commision Nacional de la Competencia (the Spanish antitrust commission), the Group becomes Spain's biggest television operator upon completion of the acquisition by Telecinco of a 22 per cent. stake in "DTS Distribuidora de Televisión Digital SA" and of 100 per cent. of the share capital of "Four Television SAU" ("Sogecuatro"), holder of the free-to-air channel "Cuatro".
2011 In February, the Issuer launches Premium Net TV, a new on demand TV system included in the standard Mediaset Premium subscription, that offers films, TV series, cartoons, documentaries, football, in addition to all of the Mediaset channels' programmes of the last seven days and available on TV, also in HD, and on a PC with the same quality as on TV. Subsequently, Premium Net TV is expanded and rebranded as Premium Play.
In March, Mediaset Premium expands its documentary offering with two new channels, BBC Knowledge and Discovery World, as part of the Premium Gallery package, which is specialised in factual entertainment with a combination of science, technology, nature, history and news, tailored to the interests of the Italian audience.
In July, Mediaset launches: (i) two new channels that further enlarges the pay TV offer of the Mediaset Premium digital terrestrial platform: Premium Crime (dedicated to enthusiasts of thrillers and detective stories) and Premium Cinema Comedy; and (ii) Mediaset Italia 2, the free digital terrestrial channel broadcasting TV series, films, documentaries, cartoons, sport and entertainment with a schedule organised in ad hoc "Zones"; and a prime time that begins at 10.00 pm.
In August, Mediaset, in joint-venture with Turner Broadcasting System Europe Limited enriches its free offer for children and kids, with the debut of Cartoonito, a free digital terrestrial channel for pre-school children (up to six years old).
In November, Mediaset launches TgCom24, a new, live, free-to-air, all news channel available on the digital terrestrial platform, satellite, online through live streaming on the TgCom24.it website, and on smartphones and tablets, through free downloadable applications.
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2012 As approved by the Extraordinary Shareholders Meetings of the relevant merging companies held on October 2011 and further to the decision of the Italian Antitrust Authority of 14 December 2011, on 2 January, the merger by incorporation of EI Towers S.p.A. (a company of the Mediaset Group created by a spin-off of Elettronica Industriale) and Digital Multimedia Technologies S.p.A. ("DMT") becomes legally effective. On the same date DMT changes its name to "EI Towers S.p.A." ("EI Towers") and the shares of the company are regularly traded on the MTA (Mercato Telematico Azionario) managed by Borsa Italiana S.p.A. The merger facilitates the integration of Mediaset Group and DMT Group assets in the production and management of radio and TV network facilities.
In March, Endemol senior debt's stake held by the Group is sold at a price representing 60 per cent. of its notional amount.
In June, in compliance with the analogue switch-off process, the Communication Department of the Italian Ministry for the Economic Development assigns to Elettronica Industriale (as an authorised network operator in charge for the exercise of Digital Terrestrial Television ("DTT") national networks) a right of use concerning the multiplex exercised (i.e., a digital television broadcast network that allows transmission of multiple content (television programs) over the same channel/frequency) for four Digital Video Broadcasting – Terrestrial ("DVB-T") frequencies for the digital terrestrial platforms and one Digital Video Broadcasting – Handheld ("DVB-H") frequency for smartphones and tablets, with a 20-year length duration and nation-wide coverage.
In July, Mediaset and Sky Italia S.p.A. enter into an agreement concerning the exchange of television rights related the 2013-2014 and 2014-2015 seasons of the UEFA Champions League and of the UEFA Europa League, which allows both operators to broadcast all the football matches of the Italian teams to be played in European football competition over the next two seasons to their own television viewers, on their own respective platforms.
In July, the Boards of Directors of Mediaset Investimenti S.p.A. ("Mediaset Investimenti"), which holds the controlling stake in Mediaset España, and Mediaset approve the merger by incorporation of Mediaset Investimenti into its parent company Mediaset. The merger operation, carried out in a simplified form, was carried out as part of the process of reorganisation and simplification of the equity investments structure of the Group. The merger by incorporation is approved by the Board of Directors Meeting of the Issuer of 25 September 2012. The merger becomes effective starting from 31 December 2012.
In August, Mediaset España formally notifies the Promotora de Informaciones, S.A. ("Prisa") group of its intention to renounce to exercise the option that was given in the context of the agreements that were signed at the end of 2010, which had as their subject some rights of governance that could be exercised in Digital Plus S.A. ("Digital Plus"), a company in which Mediaset España holds an equity investment of 22 per cent.
In August, the RTI subsidiary company Videotime sells a division of the company consisting of 10 regional sites spread over Italian national territory and which has 74 employees who supply outside broadcasting and audio visual recording services. At the same time, Videotime enters into specific agreements, with the newly incorporated third party company that has acquired the division of the company, for the supply of the services in question.
In October, Medusa enters into an agreement with Warner Bros Entertainment Italia for the sale of its home video business, in order to optimise the distribution of the home video product.
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2013 In January, Mediaset Investment Sarl exercises a call option in relation to 20,155 shares of Nessma S.A. previously held by Karoui & Karoui Luxe SA, thereby increasing its equity investment to 42.82 per cent. of Nessma S.A.'s share capital. Subsequently, on 18 March, the shareholders' meeting of Nessma S.A. approves a share capital increase. Following such capital increase, which is not subscribed to by Mediaset Investment Sarl, the aforementioned shareholding is diluted to 34.12 per cent.
In February, Elettronica Industriale submits a request for the conversion of the multiplex (i.e., a digital television broadcast network that allows transmission of multiple contents (television programs) over the same channel/frequency) called "Mediaset 3" from DVB-H technology to DVB-T technology to the Ministry for Economic Development, to the Italian Communications Authority (Autorità per le Garanzie nelle Comunicazioni) and to the Italian Antitrust Authority (Autorità Garante della Concorrenza e del Mercato).
In March, RTI enters into an agreement for the sale of its division concerned with the personnel and library of television rights and entertainment programs dedicated to an audience of children, to the Boing S.p.A. joint venture. This also necessitated the update of the agreements related to the functioning of the joint venture of Boing S.p.A..
In March, the Spanish Council of Ministers passes a resolution giving effect to the ruling of the Spanish Supreme Court of 27 November 2012, by which a resolution passed by the Council of Ministers on 16 July 2010 was declared null and void. The measure contained in that latter resolution assigned an additional channel to each of the television broadcasters, among which was Mediaset España, (at that time called Gestevision Telecinco), and Sogecuatro, covering four channels corresponding to a digital multiplex with integrated national coverage. Prior to this, Mediaset España and Sogecuatro each managed three channels. Due to the executive nature of the aforesaid ruling, Mediaset España, Antena 3, Net TV and Veo TV must, respectively, stop transmitting on the following number of channels: two channels out of eight (Mediaset España), three channels out of eight (Antena 3), two channels out of four (Veo TV) and two channels out of four (Net TV). The measure introduced by the Spanish Government establishes that such television broadcasters can, in any case, continue to transmit on the relative frequencies at least until the end of 2014, which is the timeframe established by the legislation that is currently in force for the commencement of the liberalisation of the "Digital Dividend" frequencies, which is currently ongoing.
In April, EI Towers concludes the issuance of a "rated" Eurobond ('BBB' rating, with a stable outlook assigned by Fitch Ratings) for an aggregate amount equal to Euro 230 million, a term of five years and a coupon of 3.875 per cent. The bonds have been listed on the Irish Stock Exchange.
In April, the Italian Communications Authority approves, with resolution 277/13/CONS, a new criterion regarding the offer for new digital multiplexes, excluding from the tender competition all those operators who are already in possession of three or more multiplexes, (i.e. Mediaset, RAI and Telecom). Instead, admission to the tendering competition is granted only to the so-called "new entries" and Sky. As of the date of this Prospectus, no date about the offer has been scheduled.
In June, Mediaset launches a new thematic channel, "TopCrime", specialised in investigation content.
In June, Mediaset España acquires free to air broadcasting rights for twenty-five matches of the Fifa World Cup 2014 in Brazil, including all of the Spanish team's matches.
On 27 June 2013, following the positive formal opinion of the Italian Communications Authority, the Ministry of Economic Development, authorises Elettronica Industriale to convert of the multiplex called "Mediaset 3" from DVB-H to DVB-T technology.
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STRATEGY
Mediaset is a fully-integrated TV company (Free to air - Pay TV and linear - non linear transmission), that operates with the same business model in Italy and Spain.
Italy
In Italy, among its Integrated TV activities, Mediaset intends to pursue the following long-term strategy:
Maintain focus on free-to-air television, both in linear and non-linear transmission (where linear relates to the transmission of traditional channels and non-linear relates to the transmission of on demand content). Free-to-air television is and will remain Mediaset's core activity both in terms of scale and contribution to cash generation. Mediaset has enriched the commercial quality of the Group's programmes and protected its three main channel franchises through the launch of new thematic channels on the digital platform. The development of a multichannel strategy has enhanced the Mediaset's offering which now consists of three generalist channels and eight thematic channels. In addition, the development of a multi-channel strategy is expected to allow Mediaset to increase its pool of advertising clients thanks to more profiled targets and, at the same time, will help Mediaset to develop and try out innovative programmes. Mediaset launched Videomediaset, a website dedicated to professional video content, with the entire Mediaset free- to-air library available on demand. Mediaset owns TgCom24, the fourth 6 largest provider of online news. Mediaset intends to continue to increase its online presence, both on the supply side with content and in terms of its reach on the main social networks.
Pay TV. Mediaset launched a pay TV service in 2005, meeting an emerging and growing demand for specific TV content. Trough this service Mediaset addressed the demand for access to low- cost premium content in Italy. Mediaset reinforced its commitment to the improvement of its Premium offer, broadcasting premium content, including football matches (Serie A, UEFA Champions League, UEFA Europa League), movies, tv series, documentaries and kids entertainment. As at the date of this Prospectus the entire Mediaset premium offer totals twenty- five channels and it is split between pre-paid and subscription-based offers. The pay TV business offers the opportunity of revenues and cost synergies between pay TV and free-to-air TV activities and it allows Mediaset to build up its own customer base and to enter into a direct and long-term relationship with these costumers. As a result of the strong positioning achieved by the Mediaset Premium brand in the pay TV market, Mediaset has launched a non-linear and multi- platform "over the top tv" service, called "Premium Play". Premium Play was designed with the objective of providing Mediaset Premium customers with an innovative and cutting edge platform for "non-linear" entertainment. By the end of 2013, the Issuer will also launch a stand alone on-demand media service called "Infinity" (similar to Netflix), offering a wide spread offer of movies, series, documentaries and kids content and catch-up TV.
Vertical integration for content. Along with the increase in the time people dedicate to entertainment, there has been an increase in the demand for content, especially "fresh" content from both traditional and digital media, such as the internet, gaming consoles, IP based applications and mobile phones. As platforms multiply, there is a growing gap between the distribution potential of the media channels and what is effectively available in terms of editorial, audiovisual and advertising content. The development, production and packaging of content and the construction of schedules is a task for relatively few operators, and Mediaset believes that its extensive experience in this area gives it a distinct advantage. The basic strategic idea is to be in a position to oversee the industry "bottleneck" in order to be leading players in the transformations underway. During 2012, the Issuer self-produced 46.6 per cent. of the total programmes broadcasted by Mediaset free-to-air channels. The Issuer owns the major television rights libraries in Italy and most of them are owned exclusively. Medusa is one of the leading film distribution companies in Italy7. The company produces and distributes Italian and foreign films in Italy, and is involved in cinema releases, marketing television rights and all forms of television rights. In terms of box office takings from the sale of cinema tickets, Medusa, with a market share of 18 per cent. in 2012, is the second biggest film distributor8 after Warner Bros
6Source: Audiweb. 7Source: Cinetel. 8Source: Cinetel.
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Italia S.p.A. (in 2011 it was the biggest distributor with 23.9 per cent.). Taodue is one of the main providers of in-house TV fiction for the Group. Thanks to the strategic position in content production that creates a perception of Mediaset as a "unique franchise", Mediaset had contact with millions of people, who have conducted various types of transactions with the company, ranging from registration on Mediaset's sites, subscriptions to Mediaset Premium, personal dialogue on social networks and interaction on second screens.
Tower Business. In addition, Mediaset owns 65 per cent. of EI Towers,the main9 independent operator involved in managing infrastructure networks and electronic communications services in the fields of TV, radio and mobile phone broadcasting. Mediaset's strategy is to consolidate and expand EI Towers' role as a leading independent tower operator and to increase the services provided to the costumers by offering a wide range of integrated services that go beyond traditional service.
Spain
In Spain, Mediaset España is the leading10 Spanish commercial TV operator. With its 41.6 per cent. stake, Mediaset aims to replicate the same business model in Spain as it does in Italy. In fact, Mediaset España is present in the free to air arena, with two main generalist channels and six free-to-air channels. It has a 22 per cent. stake in Canal+, the leading Spanish pay satellite TV operator. Mediaset España maintains control over content that is, therefore, crucial over the long-term, both for its free-to-air TV and pay-TV business. Its main objectives are to achieve and maintain leadership both in the audience and in the advertising market in Spain.
Mediaset has always followed an opportunistic approach towards mergers and acquisitions activity, focused on content, broadcasting and technology areas, both in Italy and Europe.
BUSINESS OVERVIEW
The Group is a diversified, international media company, whose operations are mostly in Italy and, through Mediaset España, in Spain.
The table below presents the Mediaset Group's net revenues and operating profits in its two geographical segments, Italy and Spain, for the financial years ended on 31 December 2012 and 31 December 2011 and for the first half years ended on 30 June 2013 and 30 June 2012.
Italy
As at 31 December As at 30 June
2012 2011 2013 2012
(Euro millions) Net Revenues (*) ...... 2,834.9 3,241.6 1,310.4 1,525.8 Operating Profit ...... (284.0) 374.2 86.4 113.6
Spain
As at 31 December As at 30 June
2012 2011 2013 2012
(Euro millions) Net Revenues ...... 886.7 1,009.3 427.0 474.0 Operating Profit ...... 48.8 164.5 47.2 32.0 ______(*) The difference between net total consolidated revenues and aggregate revenues of Italy and Spain is due to inter-segment revenues.
Pursuant to Article 4 of its by-laws, the corporate purpose of the Issuer consists of the following activities:
9Source: data elaborated by the Issuer's management on the basis of publicly available information. 10Source: Kantar Media / Infoadex.
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(a) direct radio and television program broadcasting. The Issuer is also permitted to own equity investments in companies that engage in this activity;
(b) the production, co-production and executive production of films, long subjects, short subjects, documentaries, TV films, and shows as well as transmissions targeted in general for television and radio channels and advertising commercials, along with the copying and duplication of television programs and films;
(c) the purchase, sale, distribution, rental, broadcasting and marketing in general of films, TV films, documentaries and film and television programs;
(d) producing and making film soundtracks, TV films and documentaries, including dubbing;
(e) music release and recording activity;
(f) operating and managing film and theatre companies; and
(g) wall space advertising, publishing, television and audiovisual activity.
Pursuant to Article 4 of its by-laws, the Issuer can also own equity investments in companies that engage in the following activities:
(h) information, cultural and free time activity with specific focus on production and/or the management and/or the commercialisation and/or the distribution of information and communication tools which are journalistic in nature, with the exclusion of daily newspapers, in whatever manner they are created, processed and circulated, whether through writing, telephony, audiovisual or television reproduction;
(i) promotional activity and public relations including the organisation and management of courses, conferences, congresses, seminars, exhibitions, shows and other activity relevant to research and culture such as the publishing of studies, monographs, catalogues, books, pamphlets and audiovisual materials;
(j) the management of industrial and real estate complexes connected to film activity and to activity indicated in preceding points from (a) to (h);
(k) the economic rights for intellectual property with all means of diffusion, including the marketing of brands, inventions and ornamental models connected to film and television works, merchandizing and sponsoring;
(l) the construction, purchase, sale and exchange of real estate; and
(m) the installation and implementation of systems for the operation and management of telecommunications services in any geographical area, and the carrying out of all related activities, including the design, creation, management and marketing of its own telecommunication, computer communication and electronic products, services and systems, though excluding any activity whatsoever for which registration in professional registers is required.
In Italy, the Issuer operates in two main areas:
Integrated television operations: consisting of commercial television broadcasts with three of the most important Italian generalist networks and an extensive portfolio of thematic free-to-air and pay television channels (linear, non-linear and over-the-top television ("OTTV") (i.e., on demand TV content available on Internet-connected devices)), and other activities relating to such channels consisting of web, teleshopping, publishing activities, licensing and merchandising and movie production and distribution;
Network infrastructure services and management: operations conducted through the Group's 65 per cent. holding in EI Towers. EI Towers is the leading independent operator in Italy involved in managing infrastructure networks and electronic communications services in the field of television, radio and mobile phone broadcasting. The company, which is listed on the Milan
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Stock Exchange, was set up in 2012 after the merger of the former EI Towers (the Group's company in which the tower business had been concentrated in 2011) and DMT, a third party company.
The table below presents the Group's net revenues and operating result from its business in Italy divided into its two main areas of operations for the financial years ended on 31 December 2012 and 31 December 2011 and for the first half years ended on 30 June 2013 and 30 June 2012.
Italy – Business segment breakdown
As at 31 December As at 30 June
2012 2011(*) 2013 2012
Net Revenues Integrated Television Operation ...... 2,778.8 3,230.8 1,283.9 1,498.0 EI Towers ...... 233.8 162.3 116.4 117.0 Intrasegment eliminations(**) ...... (177.7) (151.6) (89.9) (89.2)
Total ...... 2,834.9 3,241.6 1,310.4 1,525.8
Operating profit Integrated Television Operation ...... (328.5) 359.0 56.6 89.7 EI Towers ...... 44.5 15.2 29.8 23.9
Total ...... (284.0) 374.2 86.4 113.6 ______(*) The 2011 EI Towers data was prepared by considering: (i) for the first half-year, before the incorporation of the company (on 30 May 2011) and the subsequent contribution of the Tower branch of Elettronica Industriale to the pre-merger EI Towers, the data determined through the attribution to the "Tower business unit"of revenues and costs of the transferor Elettronica Industriale relating to such business; and (ii) for the second half-year, the historical data of the company EI Towers.
(**) Intrasegment eliminations refer to the EI Towers revenues for the use of broadcasting infrastructure and for the services of support and maintenance, logistics, design and network planning for the Issuer's subsidiary company Elettronica Industriale.
Markets in which the Issuer operates
Italy
Integrated Television Operations
The evolution of the advertising market demands that all media and distribution platforms are increasingly integrated. In the television sector, the competitive context is also characterised by the proliferation of multichannel and multiplatform offers, which affect the advertising area and the production/editorial area.
As far as the advertising sector is concerned, the various types of media are linked together in order to maximise contacts and optimise the proliferation of the different time slots for viewers, while from the production/editorial point of view, the planning and purchase of content must be managed in a coordinated and synergetic manner.
In this context, the Group has developed an integrated television model, both linear and non-linear, which is capable of guaranteeing the application of both the content and the know-how accumulated over the years from producing entertainment, news and analysis programmes in addition to films and television series with Medusa and Taodue. The purchase of sports events, films and television series from third- parties is also completely integrated.
In line with this new model, the web and film production/distribution sectors are increasingly connected to television activity, both for the capability of re-running the conveyed contents and of supplying and launching original products.
Broadcasting offer
Free-to-air commercial television comprises the Group's traditional core business, which includes the key areas of advertising sales and programme scheduling for the Group's nationwide networks.
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The Mediaset Group's free-to-air offer is currently made up of three generalist channels (Canale 5, Italia 1 and Rete 4), and eight thematic channels (Boing, Cartoonito, Iris, La 5, Mediaset Extra, Italia 2, TgCom 24 and TopCrime).
The Group's generalist channels are controlled by RTI, which is responsible for the creation and development of the programme schedules, the production of original programmes and the acquisition of television rights. The overall offering of the Mediaset network is developed to attract audiences between the ages of 15 and 64, which is also the most appealing target audience for advertisers. Mediaset is the Italian TV leader11 for this audience segment.
Canale 5 is the main channel and is geared towards the modern Italian family.
Italia 1 is the leading12 Italian channel for younger people (15-34 years old).
Rete 4 dedicates its scheduling to a more mature audience (over 55 years old).
The free-to-air multichannel offer is also composed of:
Boing, the first Italian free-to-air thematic channel for children. The channel was set up as part of a joint venture between RTI, which holds 51 per cent. of the share capital of Boing S.p.A., and Turner Broadcasting Systems Europe, which is part of the Time Warner Group and owns the rights to some of the world's most popular cartoons. Despite growing competition, the channel has capitalised on its advantageous position by developing and supporting the fame and attraction of the brand.
Cartoonito, a channel aimed at pre-school-age children and, like Boing, a joint venture between Mediaset and Turner Broadcasting Systems Europe Limited. Cartoonito is targeted at a more specific audience (up to 6 years old) than Boing.
Iris, a thematic channel dedicated to quality films. It also broadcasts programmes regarding cinema news, film stars and the most important film festivals. In 2012, Iris was the most popular13 free-to-air thematic channel in the early evening time slot in Italy.
La 5, which offers scheduling dedicated to a modern feminine audience In 2012, it was the second most popular14 channel for women between the ages of 15 and 44.
Mediaset Extra, a thematic channel that offers a selection of archive and current entertainment programmes from the Mediaset network. The channel also offers viewers the chance to watch the most popular programmes from Mediaset channels from the previous day, in a different time slot.
Italia 2, a channel dedicated to younger male viewers with scheduling including TV series, sitcoms, cult cartoons and sports and music programmes, in addition to live sports coverage of events such as the World Motorbike Championships.
TgCom24, Mediaset's news channel that can be viewed not only on 24-hour free-to-air television, but also online at TgCom24.it and on smartphones and tablets.
TopCrime, which is a thematic channel which specialises in broadcasting investigation programmes.
Mediaset's pay TV offer, Mediaset Premium, is composed by a linear offer of films, TV series, live football and children's programmes, and a non-linear offer ("Premium Play") with individual on-demand content.
The average total audience during a 24-hour period in the first half of 2013 was 11 million and 100 thousand persons, a growth of 0.3 per cent. compared to the figure for the same period of 2012.
11Source: Information elaborated by AGB Nielsen on the basis of Auditel data. 12Source: Information elaborated by AGB Nielsen on the basis of Auditel data. 13Source: Information elaborated by AGB Nielsen on the basis of Auditel data. 14Source: Information elaborated by AGB Nielsen on the basis of Auditel data.
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In total, the Mediaset networks, considering the contribution of the networks viewable in digital terrestrial television, both free and pay TV (Premium Calcio), obtained, in the first half of 2013, a 32.3 per cent. average audience share in the 24-hour period, 32.0 per cent. in Day Time (i.e., from 7:00 a.m. until 2:00 a.m., excluding Prime Time) and 33.3 per cent. in Prime Time (i.e., from 8:30 p.m. to 10:30 p.m.)15.
As of June 2013, the Issuer re-confirmed its leading position in the Italian market for the commercial target (15-64 years target) in all the time slots both for generalist channels and total channels16.
In particular, Canale 5 achieved first place17 and Italia 1 achieved third place18 in all the time slots for the 15-64 age group. Contributions from the Multi-channel Free and Pay networks continued to be positive and increased the Mediaset total audience share by approximately five per cent. of share for the number of viewers and by about six per cent. for the commercial target.
As of 30 June 2013, regarding the Spring "guarantee" period (i.e., a period in which the Issuer guarantees certain audience levels to the advertising investors and, therefore, advertising investments are more concentrated) Mediaset networks achieved an average audience share of 27.2 per cent. in the 24-hour period, of 27.1 per cent. in Day Time and of 28.5 per cent. in Prime Time. Considering the contribution of the digital channels, the average total audience viewing in the 24-hour period amounted to 32.6 per cent., to 32.5 per cent. in Day Time and 34.1 per cent. in Prime Time of the market19.
The table below20 shows Mediaset's total audience share for generalist and total channels in the first half of 2013, as compared to its main competitors.
Individuals Commercial Target
Italy – 1st half 2013 24 hours Prime Time Day-time 24 hours Prime Time Day-time
Canale 5 ...... 15.1% 15.4% 15.0% 16.5% 17.5% 16.4% Italia 1 ...... 6.5% 7.0% 6.4% 8.3% 8.6% 8.3% Rete 4 ...... 5.2% 5.4% 5.2% 4.4% 4.3% 4.4%
Total Generalist Channels ..... 26.8% 27.8% 26.6% 29.2% 30.4% 29.1%
Tematic channels and Premium Calcio ...... 5.5% 5.5% 5.4% 6.0% 6.1% 6.0% Total Mediaset ...... 32.3% 33.3% 32.0% 35.2% 36.5% 35.1%
Rai 1 ...... 18.8% 20.0% 18.8% 14.6% 16.3% 14.4% Rai 2 ...... 6.8% 7.5% 6.8% 6.5% 7.6% 6.4% Rai 3 ...... 7.8% 8.3% 7.8% 6.6% 7.7% 6.4%
Total Generalist Channels ..... 33.4% 35.8% 33.4% 27.7% 31.6% 27.2%
Thematic channels ...... 6.4% 5.4% 6.6% 6.6% 5.5% 6.8%
Total Rai ...... 39.8% 41.2% 40.0% 34.3% 37.1% 34.0%
La7 ...... 4.2% 5.4% 3.9% 3.6% 4.7% 3.4%
Others ...... 23.7% 21.1% 23.8% 26.9% 21.7% 27.5% Advertising
The Group operates in Italy through two fully-owned advertising companies: Publitalia, the sales house that operates exclusively for the free-to-air Mediaset network, and Digitalia '08 S.r.l., the sales house that specialises in selling advertising space on the pay TV platform. The Group also has a 50 per cent. holding in Mediamond, the sales house dedicated to selling advertising on the Internet sites owned jointly by the Mediaset Group and Mondadori.
The total advertising market in Italy closed 2012 with a 14.7 per cent. decrease in revenues and a loss of value of Euro 1.2 billion. This represented a decrease of the market value to Euro 7.4 billion.
15Source: Information elaborated by AGB Nielsen on the basis of Auditel data. 16Source: Information elaborated by AGB Nielsen on the basis of Auditel data. 17Source: Information elaborated by AGB Nielsen on the basis of Auditel data. 18Source: Information elaborated by AGB Nielsen on the basis of Auditel data. 19Source: Information elaborated by AGB Nielsen on the basis of Auditel data. 20Source: Information elaborated by AGB Nielsen on the basis of Auditel data.
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Advertising revenues in the Italian TV sector closed the year down 15.9 per cent., a result that was worse than the overall market result in a trend that was repeated in all four quarters. The Issuer closed the year substantially in line with the TV market (at -16 per cent.), thereby maintaining its market share.
Pay TV
Mediaset Premium
Mediaset Premium is the pay-TV service, complementary to the free-to-air segment, that provides programming via digital terrestrial transmission, cable and broadband internet. Mediaset Premium derives revenues principally from the sale of subscriptions and pre-paid packages. Mediaset Premium provides filmed entertainment, including films and television series, live sporting events, first-view filmed releases, and live reality television shows both with a linear and non linear offer (Premium Play).
During 2012, Mediaset Premium consolidated its linear offer of films and television series, reinforcing its commitment to diversifying the key contents for pay television audiences. A strong commitment was also made to offering Mediaset Premium clients new American television series just one week after they have been broadcast in the USA, and to widen the range of football programmes on offer.
Premium Play is the new TV-on-demand service accessible for all Premium subscribers, which offers approximately 3,000 continuously updated options that are also available in HD 24 hours a day (including film, television series, entertainment programmes, cartoons, documentaries and football matches).
In addition to continuous access to the Mediaset programmes shown over the previous seven days, subscribers can also rent films from Warner, Universal, Medusa and Disney that have never been seen before on television, and just a few months after they have been shown in cinemas, on a pay-per-view basis.
The Premium Play service can be accessed through an ADSL internet connection supplied by any internet provider and watched on an ordinary television set (using a digital terrestrial decoder with a Premium Play facility), a computer terminal, Digital HD Decoders, Xbox 360 consoles, iOS Tablets and the Samsung Connected TV system.
Other activities
Home Shopping
Mediashopping offers shopping options based on a multichannel commercial platform (daily windows on the Mediaset channels, internet shopping at www.mediashopping.it, large scale retail trade and telemarketing), continued throughout the year with the business activities characteristic of the company, including the selection and purchase of products, the development of home shopping channels and client services and operations designed to support these business activities.
This business model, which is already used for electronic and domestic appliance products, means that the company now has a catalogue containing a wide-range of products that is up-to-date both in terms of availability and prices, thereby avoiding the necessity for the complex planning of purchases and warehousing.
Cinema film distribution
Medusa is one of the leading 21 film distribution companies in Italy. The company produces and distributes Italian and foreign films in Italy, and is involved in cinema releases, marketing television rights and all forms of television rights.
In terms of box office takings from the sale of cinema tickets, Medusa, with a market share of 18 per cent. in 2012, is the second biggest film distributor after Warner Bros Italia S.p.A. (in 2011 it was the biggest distributor with a 23.9 per cent. market share)22.
21Source: Cinetel. 22Source: Cinetel.
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In 2012, the Medusa stood out for the attention it paid to Italian films, reconfirming its position as leader in the Italian film sector with nine of the twenty most successful Italian films, with box office takings for five of these amounting to more than Euro 5 million23.
In 2012, total box office takings of the Italian market amounted to Euro 609 million, equivalent to 91 million cinema tickets, compared with Euro 662 million and 101 million cinema tickets sold in the previous year.
New Media and Brand Extension
RTI operates in the multimedia sector through its Interactive Media department. As part of its operations, it makes the services and contents of its core business available on different platforms (Internet, mobile web, cell phones and teletext).
RTI operates on the web in two different areas:
providing entertainment programmes on the Mediaset.it site (www.mediaset.it), the point of entry to all the Mediaset web area, which includes the Videomediaset site (www.video.mediaset.it) that allows users to watch the entire episodes of many Mediaset programmes, including the complete version of every news cast on the Mediaset network; and
providing information on the TgCom site (www.tgcom.it). In particular, TgCom provides journalistic content transmitted on various technological platforms including the Internet, teletext, radio and both analogical and digital television, while sports information is available on the SportMediaset site (www.sportmediaset.it).
RTI, through its Interactive Media department also operates in the mobile phone sector and is aimed at making content and services available on mobile phones through:
brand extension, based on brands/formats that are already known to the television public. This category contains the multimedia game from the television show "Chi vuol esser milionario", and also info news services such as TG5 sms and TG5 mms; and
interactivity, aimed at creating interaction between users and television programmes (for example, voting).
The Teletext service provided by RTI (Mediavideo), which has been available since 24 November 1997, is an 800-page multimedia television news source that has an innovative mixture of contents, images and operating modality whose strong points are the fact that it is easy to use, it is always up to date and its contents are extremely varied. Mediavideo is available on both analogue and digital television.
Licensing, merchandising and publishing products
The operations, carried out by the licensing and merchandising department of RTI are concentrated on stipulating contracts for the purchase of brands from licence owners with a medium length of five years and renting out the same licences to clients or sub-licensees for a period of time of about two and a half years. The division is also responsible for developing television brands by publishing products (books, DVDs and CDs) and merchandising, marketed directly by RTI under the name "Fivestore".
International advertising
The Group entrusts Publieurope Ltd. ("Publieurope"), a wholly-owned subsidiary of Publitalia based in the United Kingdom, to look after its interests regarding the European advertising market and with the objective of achieving additional revenues through obtaining investments from an international customer base.
Specifically, these objectives are pursued through the following activities:
constant contact with the headquarters of multinationals; and
23Source: Cinetel.
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research of new concessions and new products in other countries.
These activities are carried out through offices in London, Munich, Paris and Lausanne in cooperation with the dedicated offices located in Milan (Publitalia) and Madrid (Publiespaña and Publimedia Gestion).
The advertising investments of international customers that have been acquired have mainly been in relation to the following media:
the Italian and Spanish television networks of the Group;
the ProSiebenSat1 Group with the traditional TV channels of Pro7, Sat1, Kabel1, as well as the theme channels Sport 1 and Sixx that together represent about 30 per cent. of the German television audience;
the SBS chain of television commercial channels that is spread across northern Europe and, specifically, in the Flemish part of Belgium, Holland, Sweden, Norway, Denmark and Finland, as well as in Romania and Hungary;
all the TV networks of the Group Channel 4 Corp, which represent about 25 per cent. of the commercial audience in Great Britain;
the magazines of Mondadori Pubblicità; and
the Internet sites of Mediamond (the concessionaire dedicated to the sale of advertising on the web properties of Mediaset and Mondadori).
Production of programmes
RTI is one of the main players24 in television productions and it has a technological structure that ensures the creation of very high quality products. The production commitment has been focused on to the main types of programmes such as entertainment, games and quizzes, news, daily news broadcasts and sporting events.
Information and news
The information-provision activities of Mediaset are configured as an integrated system, and comprise of the following elements:
(i) the supporting structure of the television news of the Mediaset channels;
(ii) the productions of infotainment and insights;
(iii) the news system TgCom24, in its differing variations: the television network, breaking news on generalist TV, the internet site and the applications for smart phones and tablets.
The scheduling of the information programmes, which in 2012 amounted to over 9,000 hours of self- produced product broadcasted, is the result of a profound change in the organisational and technological structure of the Group and was constructed around two strongholds, the internal agency NewsMediaset and the digital system called Dalet.
Fiction in-house production
This activity is mainly managed by the subsidiary company Taodue, which is one of the well-known Italian companies engaged in the production of TV fiction inspired by crime news or real historical events.
24Source: data elaborated by the Issuer's management on the basis of publicly available information.
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Acquisition of Rights
RTI owns the largest Italian television rights library and one of the largest in Europe25. It also carries out the activities of acquisition, development and production of rights for use on domestic television both in terms of free TV and pay TV.
The collection of television rights is constantly increased by the following:
(i) major American movie studios: RTI has in effect a number of multi-year agreements with the main American producers and distributors, such as Universal, Twentieth Century Fox, Dreamworks, Walt Disney and Warner Bros International, which establish the acquisition of rights for an average duration of five years, with the possibility of five or six television showings;
(ii) European television producers: RTI has consolidated rights acquisition agreements with European producers under the terms of which it supplies itself with television products such as TV movies, soap operas and mini-series. The serial nature of such products ensures the loyalty of viewers to the relevant broadcasting network; and
(iii) Italian movie producers and distributors: RTI acquires packages from Italian operators consisting of both the television rights for domestic movies produced by such operators and rights for international movies. In particular, RTI has a solid supply relationship with the subsidiary company Medusa.
Network infrastructure services and management
2012 was the first year in which for operations emanated from the combination of the DMT group and EI Towers, which is mainly dedicated to the management of the network infrastructure (transmission towers) and the contribution traffic, aimed at the transportation of contents from remote sources (such as TV studio production facilities or remote areas for live news) using optic fiber infrastructures and leased satellite capacity.
The EI Towers group carries out its own business for the benefit of radio, television and mobile telecommunications operators, wireless internet providers (Wifi - WiMax) and public authorities, leasing space on its towers portfolio as well as, ancillary services, such as maintenance, logistics, design and network planning, through multi-year agreements with telecommunications operators, including its parent company Elettronica Industriale.
Furthermore, the EI Towers group, through its own operational centres and network infrastructures, offers the service of contribution traffic management for the television broadcasting of the Mediaset Group.
Because of its technical know-how and an infrastructure which ensures national coverage, the EI Towers group presents itself on the market as one of the most relevant operators in the sector, offering its customers a vast range of services, including the management of a whole transmission network.
The EI Towers group is not subject to any periodical downturn phenomena and it is relatively insulated from the economic cycle due to the fact that (i) the business of the EI Towers Group is based on long term contracts of hosting on its towers and granting the provision of ancillary services and (ii) the service offered is particularly critical for telecommunications operators, as it is essential for the transmission of the signal.
Spain
In Spain, the Issuer is the main shareholder in Mediaset España with a 41.6 per cent. holding.
Mediaset España is the leading 26 Spanish commercial television operator with two main generalist channels (Telecinco and Cuatro) and a set of six free-to-air thematic channels. Mediaset España also has a 22 per cent. holding in Digital Plus, the leading Spanish pay satellite TV operator.
Mediaset España heads the Spanish television group that is the owner of the Telecinco channel, which began broadcasting in 1990.
25Source: data elaborated by the Issuer's management on the basis of publicly available information. 26Source: Kantar Media / Infoadex.
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Mediaset España is the private television group that is the market leader27 in Spanish television in terms of viewers and advertising collection.
The company is listed on the Stock Exchanges of Madrid, Barcelona, Bilbao and Valencia and, from 3 January 2005, it has been inserted in the Ibex 35, the index consisting of the thirty five largest Spanish companies by market capitalisation.
The Mediaset España group aims to consolidate its position in the commercial television market in Spain, operating in the same way as the Group in Italy, as an integrated television group in the following business activity areas:
television and non-television advertising (through Publiespaña S.A.);
pay-tv advertising (through Publimedia Gestion);
generalist television (Telecinco, Cuatro);
multi-channel television: free theme channels (Divinity, La Siete, Factoria de Ficcion, Boing, Energy and Nueve);
pay TV (through the equity investment in Digital Plus); and
Internet (through the company Conecta 5).
The advertising market
Founded in 1988, Publiespaña S.A. is the advertising company for the Mediaset España group.
The revenue from the sale of advertisements in the Spanish television market is the fifth largest in Europe. It is the second, after Italy, for the percentage of television advertising compared to the total amount of advertising investment in classic media platforms. According to the data from Kantar Media, in 2012, the percentage was 39.2 per cent.
In 2012, the Spanish economy, which was among those most affected by the worldwide crisis, continued to be impacted by: the drop in domestic demand; the extremely burdensome situation of its public debt; the austerity policy of the government (with an increase in the VAT rate as well as in the income tax) which reduced the spending capacity of the families; and its very high rate of unemployment, which had a further negative impact on private consumption. Naturally, the progress and trend of television advertising investment was impacted by this economic context and, in 2012, recorded a drop of about 18.9 per cent.28
As well as Mediaset España, the following broadcasters operate in the market:
one private commercial broadcaster, Atresmedia which, following its merger with La Sexta at the end of 2012, operates two generalistic channels (Antena 3 and La Sexta) and five thematic channels;
eight free-to-air thematic channels;
a federation of regional broadcasters, i.e. autonomicas, under the brand called La Forta, each of which operates in their respective regions; and
the Pay TV digital satellite platform Digital+, which has about 1.7 million subscribers, the cable TV Ono, with about one million subscribers and Imagenio, the IPTV (Internet Protocol Television) of the Telefonica Group.
27Source: Kantar Media / Infoadex. 28Source: Infoadex
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Broadcasting and viewers
As of 30 June 2013, Mediaset España confirmed its leading position29 as the Spanish private television network most viewed during the total day and also in the main time slots, including Prime Time, where it achieved an average result of 27.2 per cent. of market share.
In particular, Telecinco achieved 13.5 per cent.30 of the average share of total viewers in the 24-hour period, maintaining its leadership among the commercial television broadcasters.
La Cuatro arrived at 5.9 per cent.31 of the average share of total viewers in the 24-hour period. Positive results were also achieved regarding the commercial target, with a 7.3 per cent. of audience share.
Considering both the general networks and the theme networks, the Mediaset Group España achieved 28.8 per cent. of audience share in the 24-hour period and achieved 27.2 per cent. in Prime Time.
Also regarding its commercial target, the Mediaset España group achieved 30.8 per cent. in the 24-hour period and 28.6 per cent. in Prime Time.
The table below shows Mediaset España's total audience for generalist and total channels in the first half of 2013, compared to its main competitors.32
Individuals Commercial Target Spain – 1st half 2013 24 hours Prime Time Day-time 24 hours Prime Time Day-time Telecinco ...... 13.5% 13.5% 13.6% 12.7% 12.3% 12.9% Quatro ...... 5.9% 5.7% 6.1% 7.3% 7.1% 7.4%
Total Generalist Channels ...... 19.4% 19.2% 19.7% 20.0% 19.4% 20.3%
Tematic Channels ...... 9.3% 8.0% 9.7% 10.8% 9.2% 11.6%
Total Mediaset España ...... 28.8% 27.2% 29.4% 30.8% 28.6% 31.9%
Antena 3...... 13.1% 11.8% 13.8% 13.2% 12.7% 13.4% La Sexta ...... 6.0% 7.6% 5.2% 6.8% 8.9% 5.8%
Total Generalist Channels ...... 19.1% 19.4% 19.0% 20.0% 21.6% 19.2%
Thematic Channels ...... 9.2% 9.5% 9.0% 10.5% 10.5% 10.5%
Total Atresmedia...... 28.4% 29.0% 28.0% 30.5% 32.1% 29.7% TVE1 ...... 10.5% 12.7% 9.4% 9.1% 11.6% 8.0% TVE2 ...... 2.3% 1.9% 2.5% 2.0% 1.7% 2.1%
Total Generalist Channels ...... 12.8% 14.6% 11.9% 11.1% 13.3% 10.1%
Thematic Channels ...... 4.0% 3.1% 4.4% 3.5% 2.6% 3.8%
Total TVE ...... 16.8% 17.7% 16.3% 14.6% 15.9% 13.9%
Others ...... 26.2% 26.1% 26.3% 24.1% 23.4% 24.5%
In the first half of 2013, the thematic channels achieved the following viewer results: as percentages of total viewers they were 2.9 per cent. for Factoria De Ficcion, 1.2 per cent. for La Siete, 1.6 per cent. for Boing, 1.6 per cent. for Divinity, 0.8 per cent. for Nueve and 1.2 per cent. for Energy.
Mediaset España has also, in the first half of 2013, maintained a large share of the self-produced content for programme schedules on the generalist networks. In particular, for Telecinco, the self-produced content amounted to 93.2 per cent and for Cuatro amounted to 63.8 per cent..
Regarding the thematic channels, the self-produced component amounted to 100 per cent. for La Siete, amounted to 73.3 per cent. for Factoria de Ficcion and amounted to 84.1 per cent. for Nueve; while the programme schedules of the channels Divinity, Energy and Boing were mainly characterised by the rights that were acquired from third parties.
29Source: Kantar Media / Infoadex. 30Source: Kantar Media / Infoadex. 31Source: Kantar Media / Infoadex. 32Source: Kantar Media / Infoadex.
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Multichannel
Thanks to its broadcasting centre, Mediaset España has a digital platform that is able to distribute and receive audiovisual contents via satellite, optical fibre, mobile network and ADSL.
Also, in 2012, Mediaset España continued with its strategy of diversifying its multi-channel offer through the launch of a new thematic channel: Energy, which is mainly aimed at a male audience and mainly utilises sports contents. Together with the following channels, which are now consolidated, it completes the multi-channel offer of Mediaset España:
La 7 (La Siete), which is a generalist channel aimed at a young audience;
Factoria de Ficcion, which consists of Spanish and international fiction contents:
Boing, which is a channel dedicated to entertainment for children;
Energy, which is aimed at a young male audience;
Divinity, which is a channel aimed at a young female audience; and
Nueve, which is aimed at a female audience.
Investments in Television Rights
Mediaset España's policy of investments in audiovisual rights is focused not only on strengthening the type of content made up of national fiction series but also on supplying third party rights to the main channel and the new digital channels, for the purposes of replenishing its own library and for safeguarding, for the future, its own viewer audience shares and the levels of its advertising revenues.
Based on the legislative measures that oblige the Spanish television operators to invest 3 per cent. of their operational revenues in Spanish and European movie productions, Mediaset España, through its subsidiary company Telecinco Cinema SAU, has sought to transform this obligation into an entrepreneurial opportunity and, for a number of years, has been engaged in the creation of auteur movies.
Internet
The Mediaset España group believes that internet activities are a very important strategically in the context of diversifying its own business activities, both for the present and future.
During the financial year 2012, the Group reached the break-even point between revenues and costs for internet activities.
As far as its website traffic is concerned, Telecinco.es was the television broadcasters' web page that was most visited in the year 2012 and the group of pages that make up the website Mediaset.es was also the leader33 among all of the websites relative to the Spanish media groups.
Lastly, regarding television broadcasting via the internet, during 2012, the site "Mitele.es" strengthened its contents offer through specific areas dedicated to movies, which also included original language versions, and to programmes for children.
Equity investments of the Group
In Italy the Group holds the following equity investments:
(i) The Space Cinema: further to the transactions completed during the first half of 2009, the Group holds an equity interest equal to 49 per cent. in Capitolosette S.r.l., a subsidiary company of 21 Partners, a private equity fund belonging to the 21 Investimenti group, which heads The Space Cinema Group, the leader in Italy in the multiplex cinemas management sector. At the end of 2012, The Space Cinema Group managed 36 multiplex cinemas, an equivalent of 359 screens
33Source: OJD Nielsen / comScore.
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with market shares amounting to 18.5 per cent. for attendance and 20.4 per cent. for box office income.
(ii) Mediamond, a fifty-fifty joint venture between Publitalia and Mondadori Pubblicità: the concessionaire specialised in the collection of advertising for the Mediaset television sites (Videomediaset, TgCom and Sport Mediaset) and Mondadori Group, as well as for those of third party publishers.
(iii) Boing: a joint venture between RTI, which owns 51 per cent. of Boing and Turner Broadcasting System Europe, a company of the Turner Group, which owns 49 per cent. of it. In 2004 it launched the free theme channel for children that is broadcast on the digital terrestrial platform.
(iv) Tivù Sat: TivùSat S.r.l, a company founded in 2008 by Mediaset, Rai and Telecom Italia Media, carries out all the planned communication activities, both on the digital terrestrial and the satellite platforms. TivùSat is the leading free Italian satellite platform, with 1.74 million of active smart cards, equivalent to 1.47 million active viewing families.
In Spain, the Group owns, through Mediaset España, an equity investment of 22 per cent. in the Pay Television operator Digital Plus, which heads the digital satellite platform of the same name and which, at the end of 2012, had approximately 1.7 million subscribers.
LEGAL AND REGULATORY FRAMEWORK
The Group is subject to regulation under European Union, Italian and Spanish legislation. The regulatory regimes that affect the Group's business are primarily broadcasting, telecommunications and advertising laws and regulations. The Group's business is subject to regulation by various regulatory authorities.
The primary regulator of the Group's business in Italy is the Italian Communications Authority (Autorità per le Garanzie nelle Comunicazioni or "AGCOM"), the principal regulator for the Italian broadcasting industry. However, another Italian regulator that is particularly relevant to the Group's business in Italy is the Italian Antitrust Authority (Autorità Garante della Concorrenza e del Mercato or "AGCM"), the competition authority which is also responsible for monitoring compliance with advertising limits. In Spain, the primary regulator of the Group's business is the Comisión del Mercado de Telecomunicaciones ("CMT"), the principal regulator for the Spanish broadcasting industry.
The following are the main laws and regulations that affect the Group's business operations.
European Union regulatory framework
Broadcasting
The EC Television Without Frontiers Directive 1989 ("TWF Directive"), as revised in 1997, sets out basic principles for the regulation of television broadcasting activity in the European Union. The EC Audiovisual Media Services Directive 2007 ("AVMS Directive") covers all EU audiovisual media services (including on-demand services) in the digital age. It amends and renames the TWF Directive, providing less detailed but more flexible regulation. It also modernises TV advertising rules to finance audiovisual content better. The AVMS Directive is required to be implemented under national laws of EU Member States by 19 December 2009. The AVMS Directive was implemented in Italy, on 15 March 2010, by Legislative Decree no. 44 ("Decree No. 44").
The EC electronic communications directives, which include the Access Directive, Authorisation Directive, Framework Directive and Universal Services Directive (together the "EC Directives"), apply to the Group in relation to the regulation of conditional access services, access control services, electronic programme guides and standards for the transmission of television signals. In December 2005, the European Commission commenced a periodical review of the functioning of the EC Directives which resulted in the adoption of Directive 2009/140/EC, in relation to electronic communications networks and services, and Directive 2009/136/EC, concerning the protection of privacy in the electronic communications sector. Such new Directives adopted in 2009 were implemented in Italy through the adoption of Legislative Decree no. 70 of 28 May 2012, which amended the Electronic Communication Code (as defined hereinafter).
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Competition law
The Group is subject to the European competition law regime (administered by the European Commission and by the competition authorities and civil courts in each Member State) and to individual national regimes in the countries in which it operates, of which the principal countries are Italy and Spain.
Italian regulatory framework
Broadcasting
Legislative Decree no. 177 of 31 July 2005 ("Decree No. 177"), as subsequently amended, lays down general principles which regulates the planning of the broadcasting system and adapt it to the introduction in Italy of digital technology and the process of convergence between broadcasting and other areas of interpersonal and mass communications, such as electronic communications, traditional and electronic publishing and internet in all its forms.
Law no. 249 of 31 July 1997, in addition to establishing the AGCOM, bans dominance and monopolies, regulates the national frequency allocation plans for terrestrial digital audio broadcasting and sets the conditions for granting broadcast licenses. On 20 November 2002, the Constitutional Court (ruling No. 466/02) declared Article 3, paragraph 7, of Law No. 249/1997 (regarding the creation of an Authority for Communications and the rules for telecommunications, radio and television systems) unconstitutional, insofar as it did not provide for a deadline for the switch-off from analogue transmission by those entities required to broadcast through cable or satellite. In addition, the ruling of the Constitutional Court provided for the migration to cable or satellite transmission for Retequattro.
Following the ruling of the Constitutional Court, Law no. 112 of 3 May 2004 (the "Legge Gasparri") was enacted. The Legge Gasparri on the development of digital terrestrial television as a condition for the continuation of operations of analogue networks, sets forth, among other things, the rules for the broadcasting of more than twenty channels, the creation of pay services, the entry of new broadcasters and the offer of interactive services. Pursuant to the Legge Gasparri rules, Retequattro was allowed to continue broadcasting with analogue techniques.
Assignment of digital terrestrial multiplexes
On 12 April 2013, AGCOM, through resolution 277/13/CONS, approved new regulations for the assignment of digital terrestrial multiplexes. Such regulation introduced, among other things, a new criterion regarding the financial offer, excluding from the tender competition all those operators who were already in possession of three or more multiplexes (i.e. Mediaset, RAI and Telecom). Instead, only the so- called "new entries" and Sky were admitted to the tendering competition.
As of the date of this Prospectus, the Group is evaluating whether it should oppose this regulation, and include it within the context of the dispute that was set in motion to challenge the suspension of the public tender for the gratuitous assignment of frequencies (so-called "beauty contest").
Electronic Communication
Legislative Decree no. 259 of 1 August 2003 (the "Electronic Communications Code"), as subsequently amended, regulates electronic communications networks and services, including networks used for the broadcast of radio and television programmes and cable television. The Electronic Communications Code essentially aims to preserve the rights of freedom and privacy of communication as well as freedom of economic initiative and competition, ensuring market access for electronic communications networks and services.
Digital switch-off
Ministerial Decree of 10 September 2008 of the Italian Ministry of Economic Development has implemented the provision of Decree No. 177 by planning the final switch-off of the analogue transmissions throughout the entire Italian territory by means of a gradual transition to digital technology in the Italian regions by 2012. In July 2012 the migration from analogue TV to digital TV ended in Italy.
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Marketing and advertising
Decree No. 177 sets time limits for advertising on television in accordance EU legislation. Legislative Decree no. 206 of 6 September 2005 establishes regulatory guidelines on fair, truthful and comparative advertising in relation to consumer protection.
Law no. 28 of 22 February 2000 promotes and regulates, in order to ensure equal treatment and fairness in relation to all political actors, access to the media for political communication. This law also regulates and promotes, for the same purpose, access to the media during campaigns for election to the Italian parliament, for regional and administrative elections, and any referendum.
Environment
Italian Framework Law no. 36 of 2001 and Italian Presidential Decree of the Council of Ministers of 8 July 2003 establish exposure thresholds for the fields caused by equipment that generates electrical, magnetic and electromagnetic fields with a frequency ranging between 100 kHz and 300 GHz. Compliance with the exposure thresholds recommended by Italian national guidelines requires control and monitoring of the risks due to exposure to electromagnetic fields, which may damage human health.
Spanish regulatory framework
Concessions Required to Operate a Television Service
In Spain, the General Audiovisual Communication Act (Ley 7/2010 de marzo, General de Comunicación Audiovisual), dated 31 March 2010 (the "Audiovisual Law"), which promulgates the European Parliament and Commission Directive 2007/65/CE on Audiovisual Communication Services of 11 December 2007, establishes the framework that generally applies to all television broadcasters, regardless of the type of transmission or technology used.
As set out in the Audiovisual Law, it is necessary to notify the competent audiovisual authority before commencing broadcasting activity and, in the specific case of providers of services via terrestrial Hertzian (i.e., electromagnetic) waves, as is the case of digital terrestrial television, it is necessary to have been granted a license.
The legal regime governing the allocation of audiovisual broadcasting licenses is set out in the Audiovisual Law and provides, among other things, that licenses have a duration of 15 years, automatically renewable for like periods, subject to certain conditions. Exceptionally, a license may not be renewed or its renewal may be subject to competitive tender.
Title of Mediaset España to Provide Private Television Services
Pursuant to Law 10/1988 of 3 May 1988, on Private Television (Ley 10/1988, de 3 de mayo de Televisión Privada) (the "Private Television Law"), in 1989 the Spanish Government called for a public tender to award three concessions for nationwide analogue terrestrial television services. Concessions were granted to Mediaset España, together with Antena 3 de Televisión, S.A. and Sogecable, for an initial period of ten years beginning in 1990 and renewed in 2000 and in 2010, with the possibility for such concessions to be converted into a license.
In order to ensure that digital technology replaced analogue terrestrial television services, the three concession-holders were required to progressively replace their analogue terrestrial television systems with digital terrestrial television systems under the Spanish National Plan for Digital Television. All analogue signals were switched off on 3 April 2010.
The three companies applied on 3 May 2010 to have their concessions converted into licenses to provide audiovisual communication services in accordance with the time schedule set out in the Audiovisual Law; such licenses were granted in June 2010 for a term of 15 years.
The three concession-holders were granted access to a digital multiplex channel, each one with nationwide coverage. This added one more channel to the ones they managed before, bringing the total to four in each case.
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In December 2010, Mediaset España acquired Sogecuatro, the Sogecable's free-to-air television operations grouped together in a new entity which included all of Sogecable's activities involved in the production, management and exploitation of national free-to-air channels. As a result of such acquisition, Mediaset España currently operates eight free-to-air television channels.
Regulations Applicable to Programming and Advertising Content
The Audiovisual Law establishes the right of providers of audiovisual communication services to select content and determine scheduling, subject to limitations that mainly refer to programming content and to the broadcasting of advertising.
Television broadcasters must make a yearly contribution to the pre-financing of European production of motion pictures, television films and series, as well as documentaries and animated movies and series.
The Audiovisual Law sets out general programming principles in relation to the protection of children, the rights of persons with disability, the prohibition of discrimination and the right to be informed of when information is factual and when it is an opinion.
Programme sponsorship must be clearly disclosed and product placement is prohibited in children's programmes and must not affect the editorial independence of the programme nor directly incite product purchase.
In addition to these rules, the provisions set out in other advertising laws and regulations, including the General Advertising Act 34/1988 of 11 November 1988, are applicable to Mediaset España.
Restrictions on Interests in Television Companies
The Audiovisual Law places certain caps on ownership of holdings or voting rights in providers of television audiovisual communication services including restrictions on significant holdings (i.e. a holding representing, directly or indirectly, 5 per cent. of the share capital or 30 per cent. of the voting rights, or a lower percentage which enables the holder to appoint a number of directors that represent more than half of the members of the company's governing body within 24 months following the acquisition) in more than one provider of national television audiovisual communication services, holdings by residents from non-European Economic Area (EEA) member states and holdings that would prevent the existence of at least three different providers of nationwide television audiovisual communication services.
Article 36 of the Audiovisual Law provides some restrictions for an individual or entity to acquire a "significant shareholding" in the share capital or hold voting rights in more than one national television broadcaster:
1. when the average joint audience of the channels belonging to such television broadcasters exceeds 27 per cent. of the global audience during the 12 months prior to the acquisition. The exceeding percentage acquired will have no effect;
2. in the event that: (i) the national television broadcasters jointly hold usage rights over the radio electric public domain exceeding the technical capacity of two multiplex channels; and (ii) the regional television broadcasters jointly hold usage rights over the radio electric public domain exceeding the technical capacity of one multiplex channel; and
3. when such events may prevent the existence of at least 3 private national television broadcasters (for the purposes of ensuring pluralism of information services).
Funding of CRTVE
As concessionaire and provider of national television services, Mediaset España is obliged to contribute to the funding of the national public radio and television broadcaster Corporación de Radio y Televisión Española ("CRTVE") in accordance with Law 8/2009 of 8 August 2009 on the Funding of Corporación de Radio y Televisión Española (the "CRTVE Funding Law").
The CRTVE Funding Law has prohibited CRTVE from selling advertising on the channels that it operates and since 1 January 2010, from broadcasting advertising on those channels. In accordance with
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this law, the Mediaset España group must make an annual contribution equal to 3 per cent. of the total operating income recorded in the year of reference. The aggregate contribution of all free-to-air television broadcasters shall not exceed 15 per cent. of the total budgeted revenue for each year for CRTVE.
Tax deduction for investments in Spanish productions
Article 38.2 of the Legislative Royal Decree 4/2004, of 5 March 2004, which approved the consolidated text of the Spanish Corporate Income Tax Act (Texto Refundido de la Ley del Impuesto sobre Sociedades — "TRLIS") provides that investments in Spanish productions, where a physical show is produced prior to its serial industrial production, enables the producer to take advantage of a tax deduction of 20 per cent.
In accordance with additional provision ten of the TRLIS, as set out in the Cinema Act 55/2007 of 28 December 2007, for tax periods beginning from 1 January 2007, the deduction percentage will be 18 per cent.
Intellectual Property Law
The activity of Mediaset España must comply with Royal Legislative Decree 1/1996, dated 12 April 1996, adopting the intellectual property Act (Real Decreto Legislativo 1/1996, de 12 de abril, por el que se aprueba el Texto refundido de la Ley de Propiedad Intelectual), which governs, among other things, intellectual property rights, from a substantive and procedural perspective, in relation to audiovisual works.
Information Society Services and E-commerce
The web pages operated by the Group, and the information society services provided by the Group, must comply with the provisions of Act 34/2002 of 11 July 2002 on information society services and e- commerce (Ley 34/2002, de 11 de julio, de Servicios de la Sociedad de la Información y de Comercio Electronico) and with Royal Decree 2296/2004 (Real Decreto 2296/2004, de 10 de diciembre) which approves the regulation in relation to electronic communication markets, access to the networks and numeration.
Recent developments
On 22 March 2013, the Spanish Government approved a specific resolution34 (the "Acuerdo") to enforce the ruling of the Spanish Supreme Court of 27 November 2012, which declared null and void the resolution passed by the Council of Ministers on 16 July 2010. The voided resolution of 2010 had assigned an additional channel (the fourth one) to each individual television broadcaster, among whom there were Mediaset España and Sogecuatro, completing the space of four channels that corresponds to a digital multiplex with integrated national coverage.
Pursuant to the Acuerdo, all the national television broadcasters must cease to broadcast on some of their channels as follows: Mediaset España on two channels out of eight, Antena 3 on three channels out of eight, Veo TV on two channels out of four and Net Tv on two channels out of four.
The Acuerdo also establishes that the above television broadcasters can, however, continue to broadcast on the frequencies in question at least until the end of 2014, the timeframe that is established by the relative legislation currently in force for the completion of the process of the liberalising of the frequencies of the "digital dividend", which is currently ongoing.
Nevertheless, all the national television broadcasters affected by the Acuerdo have jointly decided to challenge it, since they believe it exceeds the content of the ruling pronounced by the Spanish Supreme Court. In particular, Mediaset España opposed the Acuerdo, both individually and together with the Spanish television broadcasters association (UTECA), for misinterpretation of the above mentioned ruling. In fact, the annulment of the additional assigned channels was not decided either by the Spanish Supreme Court ruling or by the process of the liberalizing of the frequencies ("digital dividend").
34"ACUERDO por el que se ejecuta la Sentencia de la Sala de lo Contencioso Administrativo del Tribunal Supremo de 27 de noviembre de 2012, que anula el Acuerdo del Consejo de Ministros de 16 de julio de 2010, por el que se asigna un múltiple digital de cobertura estatal a cada una de las sociedades licenciatarias del servicio de televisión digital terrestre de ámbito estatal"
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CORPORATE STRUCTURE
The Issuer is the parent company of the Group, which as of 30 June 2013 was made up of 24 companies (directly and indirectly controlled by the Issuer) and therefore consolidated on a line-by-line basis.
The chart below shows the main subsidiaries of the Issuer, which are part of the Mediaset Group as of the date of this Prospectus.
CORPORATE GOVERNANCE OF THE ISSUER
Corporate governance rules for Italian companies whose shares are listed on the Italian Stock Exchange are set forth in the Italian Civil Code, in Legislative Decree no. 58 of 24 February 1998, as subsequently amended and supplemented (Testo Unico della Finanza) (the "Consolidated Financial Act"), and in the relevant implementing CONSOB Regulations.
The Issuer has adopted, as its model for corporate governance, the provisions of the Corporate Governance Code (Codice di Autodisciplina) originally approved in March 2006 by the Corporate Governance Committee of the Italian Stock Exchange and subsequently amended in December 2011.
The Issuer adopts a traditional governance system, consisting of the shareholders' meeting, the board of directors and the board of statutory auditors.
The auditing of the Issuer's financial statements is undertaken by an independent auditing firm enrolled with the specific register provided by the law (see "General Information – Auditors").
Board of Directors
Pursuant to Article 17 of the Issuer's by-laws, the Issuer's board of directors (the "Board of Directors") must consist of a minimum of five and a maximum of twenty-one members, who must remain in office for a period, as determined by the shareholders' meeting, of no longer than three years after which they may be re-elected.
The current members of the Board of Directors have been appointed by the ordinary shareholders' meeting held on 18 April 2012 and will remain in office until the ordinary shareholders' meeting to be called to approve the financial statements of the Issuer as of and by the year ending 31 December 2014.
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The Board of Directors is currently composed of fifteen members, four of whom are independent, in accordance with the applicable law, the Issuer's by-laws, the Issuer's Corporate Governance Code, which was in force until 18 December 2012, and the Corporate Governance Code.
The Board of Directors has a key role in the corporate organisation of the Issuer and has the responsibility for the strategic and organisational directions that the Issuer takes, as well as checking on the existence of the controls that are necessary in order to monitor the progress and trends of the Issuer and the Group. The Board of Directors shall have all powers of ordinary and extraordinary management of the Issuer, performing the functions and holding the responsibilities inherent in providing the strategic and organisational orientation, as well as verifying the availability of the necessary controls to monitor the performance of the Issuer and the Group.
In accordance with the Corporate Governance Code, the Board of Directors has established four internal committees: the Corporate Governance and Nominations Committee, the Compensation Committee, the Executive Committee, and the Internal Control and Risks Committee.
The current members of the Board of Directors are set out below, together with an indication of their principal appointments outside the Issuer as of the date of this Prospectus.
Name Position Principal appointments outside the Issuer
Fedele Confalonieri Chairman Chairman of the Associazione Televisioni Nazionali in the framework of the Federazione Radio Televisioni Member of the Executive Committee and Council of Confindustria and Assolombarda Board Member of "Il Giornale" Italian daily newspaper Board Member of Mediaset España Comunicacion S.A.
Pier Silvio Berlusconi Vice-chairman Chairman and Managing Director of R.T.I. S.p.A. Board Member of Medusa Film S.p.A. Board Member of Mediobanca S.p.A. Board Member of Arnoldo Mondadori Editore S.p.A. Board Member of Publitalia '80 S.p.A. Board Member of Mediaset España Comunicacion S.A.
Giuliano Andreani CEO Chairman and Managing Director of Publitalia '80 S.p.A. Chairman of Digitalia '08 S.r.l. Chairman of Mediamond S.p.A. Board Member of R.T.I. S.p.A. Board Member of Mediaset España Comunicacion S.A. Board Member of Medusa Film S.p.A. Board Member of Auditel S.r.l.
Marina Berlusconi Director Chairman of Fininvest S.p.A. Chairman of Arnoldo Mondadori Editore S.p.A.
Pasquale Cannatelli Director Managing Director of Fininvest S.p.A. Board Member of Arnoldo Mondadori Editore S.p.A. Board Member of Mediolanum S.p.A. Board Member of AC Milan S.p.A.
Paolo Andrea Colombo Director Chairman of Enel S.p.A. Board Member of GIVI Holding S.p.A. Chairman of the Statutory Auditors of GE Capital Interbanca S.p.A. Statutory Auditor of Humanitas Mirasole S.p.A.
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Name Position Principal appointments outside the Issuer
Statutory Auditor of Angelo Moratti S.a.p.A.
Mauro Crippa Director Board Member of Società Europea Editrice de "Il Giornale" Board Member of R.T.I. S.p.A. Board Member of Class CNBC S.p.A.
Bruno Ermolli Director Chairman of Sin&rgetica S.r.l. Chairman of Promos (Special Agency of the Milan Chamber of Commerce) Chairman of Parcam S.r.l. Deputy Chairman of Fondazione Teatro della Scala Board Member of Arnoldo Mondadori Editore S.p.A. Board Member of Mondadori France S.A.S. Board Member of Mediobanca S.p.A. Board Member of Fondazione Cariplo S.p.A. Board Member of Pellegrini S.p.A. Board Member of Luigi Bocconi University Board Member of Milan Polytechnic Board Member of Censis (Centro Studi Investimenti Sociali) Board Member of Fondazione Pier Lombardo Board Member of Milan Foundation for La Scala Board Member of FAI (Fondo per l'Ambiente Italiano) Board Member of Sipa Bindi S.p.A. Board Member of the Council Chamber of the CCIA in Milan
Marco Giordani Director and CFO Member of the Executive Committee of Assonime, the Association grouping Italian joint stock companies Chairman of Media Shopping S.p.A. Managing Director of R.T.I. S.p.A. Board Member of Mediaset España Comunicacion S.A. Board Member of Publitalia '80 S.p.A. Board Member of Mediamond S.p.A. Board Member of Medusa Film S.p.A.
Alfredo Messina Director Acting Deputy Chairman of Mediolanum S.p.A. Chairman of Vacanze Italia S.p.A. Board Member of Mediaset España Comunicacion S.A. Board Member of Quinta Communications S.A. Board Member of MolMed S.p.A.
Gina Nieri Director Deputy Chairman of R.T.I. S.p.A. Deputy Chairman of ACT Association of Commercial Television Europe Member of the Council and of the Executive Committee of Assolombarda Member of the Council of Confindustria Deputy Chairman of the Campus Multimedia Consortium (a consortium set up by Mediaset and the Libera Università di Lingue e Comunicazioni IULM)
Michele Perini Director Chairman of SAGSA S.p.A. Chairman of Fiera Milano S.p.A. Honour Chairman of the Leonardo da Vinci Science and Technology Museum in Milan
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Name Position Principal appointments outside the Issuer
Board Member of ISPI (International policy study institute, Milan)
Niccolò Querci Director Deputy Chairman of Publitalia '80 S,p,A, Deputy Chairman and Managing Director of Human Resources, General Services and Safety of R.T.I. S.p.A.
Carlo Secchi Director Director of the Istituto di Studi Latino-Americani e dei Paesi in Transizione Deputy Chairman of ISPI (International policy study institute, Milan) Chairman of Mediolanum S.p.A. Chairman of the Italian group of the Trilateral Commission Board Member of Veneranda Fabbrica del Duomo Board Member of Pirelli & C. S.p.A. Board Member of ItalCementi S.p.A.
Attilio Ventura Director Board Member of Frendy Energy S.p.A. Board Member of Swiss & Global SGR S.p.A. Board Member of Ceresio Sim S.p.A.
The business address of each of the members of the Board of Directors is the registered address of the Issuer.
Board of Statutory Auditors
Pursuant to Article 28 of the Issuer's by-laws, the current Issuer's board of statutory auditors (the "Board of Statutory Auditors") is composed of three statutory auditors and two alternate auditors, who remain in office for three financial years. Members of the Board of Statutory Auditors may be re-elected.
The Extraordinary Shareholders' Meeting of the Issuer held on 24 April 2013 approved, among other things, certain amendments to Article 28 of the Issuer's by-laws in order to align its provisions to the currently applicable legal and regulatory framework, including an increase in the number of alternate auditors from two to three, effective from the next appointment of the Board of Statutory Auditors.
The Board of Statutory Auditors is vested with supervision and control powers provided by applicable law, by the Issuer's by-laws and by the Corporate Governance Code.
The current members of the Board of Statutory Auditors have been appointed by the ordinary shareholders' meeting held on 20 April 2011 and will remain in office until the ordinary shareholders' meeting to be called to approve the financial statements of the Issuer as of and by the year ending 31 December 2013.
The current members of the Board of Statutory Auditors are set below, together with an indication of their principal appointments outside the Issuer as of the date of this Prospectus.
Name Position Principal appointments outside the Issuer
Mauro Lonardo Chairman Chairman of the Board of Statutory Auditors of Unicompany S.p.A. Statutory Auditor of Azienda Municipale Ambiente S.p.A. Roma (AMA) Statutory Auditor of Rivara Gas Storage S.r.l. Statutory Auditor of Cosmic Blue Team S.p.A. Statutory Auditor of Fondaereo Statutory Auditor of Rino Immobiliare S.p.A. Statutory Auditor of Intec Telecom System Italia S.p.A.
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Name Position Principal appointments outside the Issuer
Statutory Auditor of AFP Capital S.r.l. Statutory Auditor of Gimias S.p.A. Statutory Auditor of Indipendent Gas Management S.r.l. Statutory Auditor of Indipendent Energy Solutions S.r.l. Auditor of Uniholding S.r.l. Auditor of Apriti Sesamo Cooperativa sociale Sole administration of L4C Services S.r.l.
Silvio Bianchi Martini Statutory Auditor Statutory Auditor of Sofidel S.p.A.
Francesco Vittadini Statutory Auditor Chairman of the Board of Statutory Auditors of AC Milan S.p.A. Chairman of the Board of Statutory Auditors of Finisvim S.p.A. Chairman of the Board of Statutory Auditors of EI Towers S.p.A. Chairman of the Board of Statutory Auditors of Towertel S.p.A. Chairman of the Board of Statutory Auditors of Elettronica Industriale S.p.A. Chairman of the Board of Statutory Auditors of Giambelli S.p.A. Chairman of the Board of Statutory Auditors of Mediolanum Vita S.p.A. Chairman of the Board of Statutory Auditors of Milan Entertainment S.r.l. Chairman of the Board of Statutory Auditors of Reteitalia S.p.A. in liquidation Chairman of the Board of Statutory Auditors of R.T.I. S.p.A. Chairman of the Board of Statutory Auditors of Videotime S.p.A. Statutory Auditor of Auditel S.r.l. Statutory Auditor of Digitalia '80 S.r.l. Statutory Auditor of Promoservice Italia S.r.l. Statutory Auditor of Fininvest S.p.A. Statutory Auditor of Holding Italiana Prima S.p.A. Statutory Auditor of Il Teatro Manzoni S.p.A. Statutory Auditor of Isim S.p.A. Statutory Auditor of Mediolanum S.p.A. Statutory Auditor of Milan Real Estate S.p.A. Statutory Auditor of Titanus Elios S.p.A. Statutory Auditor of Videodue S.r.l. Board Member of Immobiliare Osio S.r.l.
Massimo Gatto Alternate Auditor
Flavia Daunia Minutillo Alternate Auditor
Conflicts of interest
As of the date of this Prospectus, no member of the Board of Directors or the Board of Statutory Auditors has declared a private interest or has any other duties which constitute an actual or a potential conflict of interest of such member with respect to his duties to the Issuer or which could be material in the context of the issue of the Notes.
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SHARE CAPITAL
As of the date of this Prospectus, the Issuer has an authorised, issued and fully paid-in share capital of Euro 614,238,333.28, consisting of 1,181,227,564 ordinary shares with a nominal value of Euro 0.52 each. Each ordinary share grants one voting right in the shareholders' meeting, save for 44,825,500 treasury shares, equal to 3.795 per cent. of the Issuer' share capital, in respect of which the relevant voting rights have been suspended.
Structure of the share capital of the Issuer
Rights and Type of shares No. of shares % of share capital Listing obligations
Ordinary shares 1,181,227,564 (par 100% Italian Stock Exchange In accordance with value of Euro 0.52) -Blue Chip Segment current applicable law and the Issuer's by-laws
The Issuer has not issued any other categories of shares or other financial instruments convertible into or exchangeable into ordinary shares.
Stock option plans
As of the date of this Prospectus, there are no outstanding stock option or stock grant plans which could require share capital increases.
MATERIAL SHAREHOLDINGS
The table below shows the persons and entities who, as of the date of this Prospectus, on the basis of notifications received pursuant to Article 120 of the Consolidated Financial Act and the relevant notices sent to the Commissione Nazionale per le Società e la Borsa ("CONSOB"), hold more than 2 per cent. of the Issuer's share capital.
% of the ordinary % of the share voting share Applicant Direct shareholder capital capital
Silvio Berlusconi ...... Fininvest – Finanziaria di Investimento S.p.A. 41.291 41.291 Grantham, Mayo, Van Otterloo & Co. LLC...... Grantham, Mayo, Van Otterloo & Co. LLC 2.034 2.034 Mackenzie Financial Corporation ...... Mackenzie Financial Corporation 4.920 4.920
In addition to the above, Mediaset owns 44,825,500 treasury shares, equal to 3.795 per cent. of the Issuer's share capital, in respect of which the relevant voting rights have been suspended.
Management and coordination activities
The Issuer is subject to the de facto control of Fininvest S.p.A. ("Fininvest") since the latter holds 41.291 per cent. of the company's share capital. On 4 May 2004, Fininvest notified the Issuer that pursuant to Article 2497 et seq of the Italian Civil Code, it would not conduct management and coordination activities with respect to Mediaset.
Fininvest's statement is based on the fact that the Issuer independently sets its own strategy and has full organisational, management and negotiating autonomy since it is not subject to any strategic or coordination activities imposed by Fininvest for its own business operations. In particular, Fininvest does not issue directives to the Issuer or provide any technical, administrative or financial assistance or coordination for the Issuer and its subsidiaries.
The Issuer currently exercises management and coordination activities, pursuant to article 2497 and the following ones of the Italian Civil Code, over the following companies within the Mediaset Group: Digitalia '08 S.r.l., Elettronica Industriale, Media Shopping S.p.A., Medusa, Promoservice Italia S.r.l., Publitalia, RTI, Taodue, Videotime and X Content S.r.l. in liquidation. From January 2012 the Issuer also carries out management and coordination activities in respect of the listed subsidiary company EI Towers.
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Shareholders' agreements
There are no voting pacts, concerning the Issuer, pursuant to article 122 of the Consolidated Financial Act.
LEGAL PROCEEDINGS
Italy
As part of the ordinary course of business, the Issuer is subject to a number of proceedings as a defendant.
The Mediaset Rights Trial
In relation to the main lawsuits in existence as of the date of this Prospectus, it should be noted that with regard to criminal proceedings no. 22964/2001 (the so-called "Mediaset Rights Trial"), on 23 October 2012 the Court of Milan handed down its decision as court of first instance finding Silvio Berlusconi, Frank Agrama, Gabriella Galetto and Daniele Lorenzano guilty of tax fraud. The Chairman of the Boards of Directors, Fedele Confalonieri, was fully absolved. The Court of Appeal of Milan confirmed this first level ruling on 8 May 2013.
On 2 August 2013, the Italian Supreme Court (Corte di Cassazione) confirmed the ruling of the Court of Appeal of Milan.
Tax litigation
On 21 December 2012, the Italian Revenues Agency (Agenzia delle Entrate) issued the Issuer with an assessment notice raising the net profit of the Issuer for the fiscal year 2003 by Euro 8.8 million for purposes of IRPEG (i.e. the corporate income tax) and IRAP (i.e. the regional tax on productive activities), on grounds of non-recognition of amortisation for the television rights involved in the above criminal case. It should be noted that an appeal against the assessment notice issued for the 2001, 2002 and 2003 tax periods was lodged with the competent Taxation Commission (Commissione Tributaria). The hearing before the Provincial Taxation Commission of Milan for the discussion of the "rights" dispute, relative to the 2001 tax year was fixed for 9 October 2013 and has been subsequently postponed to 4 December 2013.
It should be stressed that none of the tax disputes before the Taxation Commissions have been decided, that opinions are divided as to the likely outcome of those disputes, and that the proceedings in question form part of a fairly systematic though as yet unresolved set of criminal cases in which the courts' decisions – such as, most recently, that of the Court of Cassation handed down on 6 March 2013 – though they relate to different tax years, nevertheless agree in relation to facts which are similar to those which the Issuer has challenged in the tax hearings: this accordingly strengthens the Issuer's position. On 22 October 2013, the Issuer signed a settlement agreement with the Italian Revenues Agency to pay approximately 45 per cent. of the amount the Italian Revenues Agency alleged to be outstanding, in quarterly instalments over a period of 3 years. The Issuer paid the first instalment of approximately Euro 1.65 million on 21 October 2013. The Issuer strongly believes that the payments of the instalments pursuant to the settlement agreement are not material and will not have an impact on its solvency.
The proceeding no. 40382/05 (the "Mediatrade" case), involving Frank Agrama together with directors and managers of the Mediaset Group, is currently at the trial stage of cross-examination and argument. The Mediaset Group officers are charged with aggravated tax fraud between 2005 and 30 September 2009. The total amount of tax allegedly evaded is Euro 8.2 million. The Issuer is confident that the trial stage will show that it itself, its directors and its senior managers had no involvement in the alleged offences, and accordingly believes there is no need to make any specific provision in the accounts.
With reference to the Tax Assessment Notice that was formally served on RTI on 21 December 2012 relative to the "Mediatrade rights" dispute for the 2003 tax year, with which the Italian Revenues Agency adjusted the taxable base by Euro 7.8 million, it is highlighted that the situation was defined in May 2013 by means of the presentation of a declaration of adherence to the assessment made by that institution, but solely for the purpose of carrying out a deflationary action regarding the taxation dispute. This decision was also taken while being fully aware of the fact that the calculation of the taxable base made by the Italian Revenues Agency is not in line with the technical valuation carried out by KPMG S.p.A., which is the basis of the public prosecution in the criminal proceedings that are referred to above and that the
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matters that are the subject of the adherence were fully defined at the end of the criminal proceedings with an acquittal judgement that was made "because the fact did not take place"35.
The aforementioned declaration of adherence brought about a charge of Euro 2.7 million for the Group.
The estimate of the value of the potential risk involved if there arises a dispute, initiated by the Italian Revenues Agency for the tax years 2004 to 2011, amounts to approximately Euro 8 million, plus the relative interest charges and fines.
On 21 December 2012, the Italian Revenues Agency notified Publitalia with an assessment notice concerning (i) VAT for 2005, 2006 and 2007, (ii) IRES for 2006 and 2007 and (iii) IRAP for 2006 and 2007, for an aggregate amount equal to Euro 7.2 million plus interest and fines. In respect of such assessment, Publitalia proposed a declaration of adherence to the assessment on part of the objections raised by the Italian Revenues Agency and, while no agreement has been reached with the tax authorities, the relevant appeal has been promptly filed. The Group has set aside a provision equal to Euro 6 million for this litigation.
Spain
Measures imposed by the Spanish Antitrust Authority
On 6 February 2013, the Spanish Antitrust Authority, (i.e. "Consejo de la Comision Nacional de la Competencia"), sanctioned Mediaset España for an aggregate amount of Euro 15.6 million, claiming that Mediaset España had not complied with certain obligations and undertakings to which the business concentration between Telecinco and Cuatro was subordinated. Such obligations included, among other things, certain restrictions upon Mediaset España aimed at neutralising the business concentration that would have taken place as a result of the transaction.
The Spanish Antitrust Authority developed an action plan, including period reporting requirements, in order to supervise the compliance with the aforementioned obligations. The compliance with such obligations resulted in a significant change to the commitments undertaken by Mediaset España in respect of both advertising matters and the acquisition of television rights. Mediaset España contested and appealed against the action plan before the appropriate administrative bodies and, as at the date of this Prospectus, a ruling on this matter is still pending.
Mediaset España claims it has fulfilled the aforementioned obligations, including (i) the reduction in the advertising market share as a result of the average price charged, and (ii) renouncing the right to exercise all the options included in the purchase contracts of TV content entered into by the same Mediaset España.
For these reasons, Mediaset España has decided to submit a plea to the Spanish National Court ("Audiencia Nacional"), requesting the suspension of the payment of the sanction in line with the provisions of Articles 46, 129 et seq. of Law 29 of 13 July 1998. In light of the foregoing, Mediaset España believes that the sanction issued by the Spanish Antitrust Authority is not founded and, therefore, has not set aside any specific provision in its half-yearly condensed consolidated financial statements.
Tax litigation
During the first half of 2013, the Spanish Financial Administration (i.e. "Dependencia de Control Tributario y Adeanuero de la Delegacion Central de Grandes Contribuentes") carried out a tax audit against Mediaset España, and contested Mediaset España's application of certain fiscal criteria in the calculation of the "gambling" tax called "Tasa juegos, suerte, envite oazar: Rifas y tombola y Tasa de juego" for the tax years 2008 - 2011 inclusive, claiming an additional assessment for an aggregate amount of Euro 9 million. Mediaset España maintains the use of the same calculation criteria already established by the same tax authority in respect of identical transactions. Therefore, Mediaset España has not set aside any specific provision regarding this matter in its condensed half yearly consolidated financial statements.
35Court of Appeal of Milan, 8 June 2013.
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EMPLOYEES
As of 30 June 2013, the Group had 5,828 employees. A summary of the Group's employees, by category and geographical area is set forth in the table below.
Number of employees (including temporary staff) Italy Spain
As at 30 June As at 30 June
2013 2012 2013 2012
Managers ...... 307 360 120 121 Journalists ...... 342 353 169 175 Middle managers ...... 882 916 81 88 Office workers ...... 2,920 3,191 938 964 Industry workers ...... 46 62 23 23
Total...... 4,497 4,882 1,331 1,371
Average workforce (including temporary staff) Italy Spain
As at 30 June As at 30 June
2013 2012 2013 2012
Managers ...... 313 363 119 119 Journalists ...... 339 360 171 176 Middle managers ...... 885 921 82 89 Office workers ...... 2,985 3,124 933 966 Industry workers ...... 57 147 23 23
Total...... 4,579 4,915 1,328 1,373
RELATED PARTY TRANSACTIONS
On 9 November 2010, the Board of Directors of the Issuer voted to adopt the "Procedure for Related- Party Transactions" carried out by the Issuer directly or through subsidiaries. Such procedure was prepared in accordance with principles set forth in the "Regulation with Provisions Concerning Related- Party Transactions" adopted by CONSOB in its Resolution no. 17221 of 12 March 2010.
The procedure, which is published on the Issuer's website (www.mediaset.it/investor/governance/particorrelate_it.shtml), sets out rules for identifying, approving, executing and disclosing related-party transactions carried out by the Issuer directly or through subsidiaries, in order to ensure the transparency and substantive procedural appropriateness of the transactions, as well as cases for which these rules do not apply.
With regard to the periodic reporting that broadcasters are required to provide pursuant to CONSOB Resolution no. 17221 of 12 March 2010 (Article 5, paragraph 8 of the Regulation with Provisions Concerning Related-Party Transactions), the most significant transactions completed during 2012 were as follows:
(i) the issuance of a line of credit to the subsidiary El Towers in the amount of Euro 140 million for 12 months, renewable annually;
(ii) the prepayment of a loan with a remaining balance of Euro 300 million provided by Mediaset Investimenti, having its maturity date on 15 January 2013; and
(iii) on 11 December 2012, the agreement for the merger by incorporation of Mediaset Investimenti into Mediaset was entered into. The merger took effect for legal purposes on 31 December 2012, with the elimination, on the same date, of the absorbed company.
Furthermore, the Group has an agreement in place with Fininvest concerning the concession of the Mediaset brand use, under which the Issuer pays to Fininvest an amount of Euro 3.7 million per year.
RECENT DEVELOPMENTS
On 26 July 2013, the Issuer entered into an agreement with Fox International Channels Italy S.r.l. for the distribution, as part of the Mediaset Premium package, of "Fox Sports", a new channel broadcasting
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matches from the leading European football championships (the English Premier League, the English FA Cup, the Spanish Primera Liga and the French Ligue 1).
On 30 July 2013, the boards of directors of Towertel S.p.A. and EI Towers approved the project for the spin-off of a division of Towertel S.p.A. and its merger into EI Towers. The spin-off operation is aimed at achieving a better operational integration of the Mediaset Group by concentrating, within Towertel S.p.A., those systems dedicated to telecommunications operators and breaking out and incorporating into EI Towers those systems dedicated to broadcasting operators, with the corresponding accounting book assets and liabilities. The spin-off shall become effective from 1 January 2014.
On 1 August 2013, the Issuer entered into an agreement with the Eurosport group for the distribution, as part of the Mediaset Premium package, of two new channels, "Eurosport" and "Eurosport 2" dedicated to national and international sports events (such as tennis matches, cycling, motorcycling, athletics, basketball, etc.).
As announced by Publitalia on 14 October 2013 during a meeting with advertising clients, in the third quarter of 2013 Mediaset recorded advertising sales in line with the same period of 2012.
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OVERVIEW OF CONSOLIDATED FINANCIAL INFORMATION OF THE ISSUER
The tables below set out an overview of the consolidated financial information of the Mediaset Group as at and for the years ended 31 December 2012 and 2011 and as at and for the six months ended 30 June 2013 and 2012.
The financial information set out below is derived from and should be read in conjunction with, and is qualified in its entirety by reference to the full audited consolidated annual financial statements of the Issuer as at and for the years ended 31 December 2012 and 2011 and the unaudited consolidated half- yearly financial statements of the Issuer as at and for the six months ended 30 June 2013, in each case together with the accompanying notes and (where applicable) reports of the Issuer's external auditors, all of which are incorporated by reference in this Prospectus.
The Issuer has prepared its consolidated annual financial statements and its half-yearly financial information in accordance with International Financial Reporting Standards, as adopted by the European Union. Reconta Ernst & Young S.p.A., auditors to the Issuer, audited the consolidated annual financial statements of the Issuer as at and for the years ended 31 December 2012 and 31 December 2011 and performed a limited review of the half-yearly financial information of the Issuer as at and for the six months ended 30 June 2013 in accordance with CONSOB Regulation No. 10867 of 31 July 1997.
Restatement under IFRS 3
The income statement data contained in the unaudited unconsolidated financial statements of the Issuer as of and for the six months ended 30 June 2012 have been restated (the “Restated Financial Information”) in order to take into account, retrospectively from 1 January 2012, the impacts connected with the re-measurement of the book values and the estimated useful lives of certain assets, which took place within the context of the final allocation process regarding the assets and liabilities acquired by the Group as a result of the business combination between the "Tower" businesses owned by the Mediaset Group and the DMT group.
The operation was initially accounted for pursuant to IFRS 3, by applying the purchase method, calculating the goodwill, on a provisional basis, in proportion to the percentage of control of the acquired entity, (i.e. the partial goodwill) between the cost of the business combination, calculated, pursuant to IFRS 3, on the basis of the quantity of the financial instruments representing the share capital that the accounting incorporating company would have had to issue in favour of the shareholders of the accounting incorporated company and the preliminary fair value of the assets and liabilities acquired, identified at the reference date.
The identification of the final fair values of the assets and liabilities acquired has been completed, with the support of independent appraisers, within 12 months from the date of the acquisition, as established by IFRS 3, and included in the 31 December 2012 audited consolidated financial statements.
The preparation of the Restated Financial Information with respect to the income statement contained in the unaudited unconsolidated financial statements of the Issuer as of and for the six months ended 30 June 2012, has been conducted by the Issuer in accordance with IFRS 3. The Restated Financial Information has been prepared by the Issuer, who has represented that (i) the underlying assumptions used in preparing the Restated Financial Information and for presenting the effects of the transactions described herein are reasonable, and (ii) the methodology used in the preparation of the Restated Financial Information has been applied correctly and consistently for the purposes illustrated therein.
The Restated Financial Information has not been separately audited or reviewed by the independent auditors. Reconta Ernst & Young S.p.A. has examined the methods adopted to restate the income statement contained in the unaudited unconsolidated financial statements of the Issuer as of and for the six months ended 30 June 2012 only for the purpose of their review report in relation to the unaudited consolidated financial statements of the Issuer as of and for the six months ended 30 June 2013, incorporated by reference herein.
As such, investors are cautioned against placing undue reliance on the Restated Financial Information. See "Risk Factors - The Issuer's restated consolidated financial information provided in this Prospectus may not be representative of actual results of operations or financial condition".
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CONSOLIDATED ANNUAL BALANCE SHEETS
As at 31 December 2012 2011 (Audited) (Amounts in euro millions) Assets Non-current assets Property, plant and equipment ...... 606.6 565.6 Television and movie rights ...... 2,284.1 2,918.5 Goodwill...... 912.3 793.3 Other intangible assets ...... 705.2 717.8 Investments in associates ...... 511.0 526.1 Other financial assets ...... 17.3 107.8 Deferred tax assets...... 565.9 464.7 Total non-current assets ...... 5,602.4 6,093.8 Current assets Inventories ...... 54.3 91.8 Trade receivables ...... 924.2 1,071.7 Other receivables and current assets ...... 393.0 211.3 Current financial assets...... 24.7 95.5 Cash and cash equivalents ...... 221.8 113.9 Total current assets ...... 1,618.0 1,584.4 Non-current assets held for sale ...... — — Total Assets ...... 7,220.5 7,678.2
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CONSOLIDATED ANNUAL BALANCE SHEETS
As at 31 December 2012 2011 (Audited) (Amounts in euro millions) Shareholders' equity and liabilities Share capital and reserves Share capital ...... 614.2 614.2 Share premium reserve ...... 275.2 275.2 Treasury shares ...... (416.7) (416.7) Other reserves ...... 504.9 436.4 Valuation reserve ...... 0.6 26.4 Retained earnings ...... 1,430.7 1,317.8 Net profit for the period ...... (287.1) 225.0 Group shareholders' equity ...... 2,121.9 2,478.3 Minority interests in net profit ...... 37.3 64.0 Minority interests in share capital, reserves and retained earnings ...... 805.9 753.4 Minority interests ...... 843.2 817.4 Total shareholders' equity ...... 2,965.1 3,295.7 Non-current liabilities Post-employment benefit plans...... 97.9 92.4 Deferred tax liabilities ...... 67.8 33.5 Financial liabilities and payables ...... 1,212.3 1,203.7 Provisions for non current risks and charges ...... 110.0 78.0 Total non-current liabilities ...... 1,488.0 1,407.6 Current liabilities Financial payables ...... 686.3 702.6 Trade and other payables ...... 1,567.8 1.924,9 Provisions for current risks and charges ...... 115.8 90.7 Current tax liabilities ...... 57.7 8.8 Other financial liabilities ...... 51.8 55.6 Other current liabilities ...... 287.9 192.2 Total current liabilities ...... 2,767.4 2.974,9 Liabilities related to non-current assets held for sale ...... Total Liabilities ...... 4,255,4 4,382.5 Total shareholders' equity and liabilities ...... 7,220.5 7,678.2
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CONSOLIDATED ANNUAL INCOME STATEMENTS
For the year ended 31 December 2012 2011 (Audited) (Amounts in euro millions) Sales of goods and services ...... 3,682.5 4,208.2 Other revenues and income ...... 38.2 42.0 Total net consolidated revenues ...... 3,720.7 4,250.2 Personnel expenses ...... 624.3 585.6 Purchases, services, other cost ...... 1,826.9 1,838.2 Amortisation, depreciation and write-downs ...... 1,504.9 1,286.8 Impairment losses and reversal of impairment on fixed assets ...... 0.9 Total costs ...... 3,956.1 3,711.5
EBIT ...... (235.4) 538.7 Financial losses ...... (107.4) (111.2) Financial income ...... 46.6 63.8 Income/(expenses) from equity investments ...... 8.8 (32.1) EBT ...... (287.4) 459.2 Income taxes ...... 37.6 (170.2) Net profit from continuing operations ...... (249.8) 289.0 Net Gains/(Losses) from discontinued operations ...... 0 0 Net profit for the period ...... (249.8) 289.0 Attributable to: - Equity shareholders of the parent company ...... (287.1) 225.0 - Minority Interests ...... 37.3 64.0 Earnings per share - Basic (eur) ...... (0.25) 0.20 - Diluted (eur) ...... (0.25) 0.20
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UNAUDITED CONSOLIDATED HALF-YEARLY BALANCE SHEETS
As at 30 June As at 31 2013 December 2012 (Unaudited) (Audited) (Amounts in euro millions) Assets Non-current assets Property, plant and equipment ...... 570.1 606.6 Television and movie rights ...... 2,132.3 2,284.1 Goodwill...... 912.7 912.3 Other intangible assets ...... 697.7 705.2 Investments in associates ...... 493.1 511.0 Other financial assets ...... 44.7 17.3 Deferred tax assets...... 541.7 565.9 Total non-current assets ...... 5,392.2 5,602.4 Current assets Inventories ...... 37.6 54.3 Trade receivables ...... 837.2 924.2 Other receivables and current assets ...... 404.2 393.0 Current financial assets...... 24.9 24.7 Cash and cash equivalents ...... 231.9 221.8 Total current assets ...... 1,535.8 1,618.0 Non-current assets held for sale ...... — Total Assets ...... 6,928.0 7,220.5 Shareholders' equity and liabilities Share capital and reserves Share capital ...... 614.2 614.2 Share premium reserve ...... 275.2 275.2 Treasury shares ...... (416.7) (416.7) Other reserves ...... 504.7 504.9 Valuation reserve ...... 1.7 0.6 Retained earnings ...... 1,146.0 1,430.7 Net profit for the period ...... 30.1 (287.1) Group shareholders' equity ...... 2,155.3 2,121.9 Minority interests in net profit ...... 23.3 37.3 Minority interests in share capital, reserves and retained earnings ...... 839.4 805.9 Minority interests ...... 862.7 843.2 Total shareholders' equity ...... 3,018.0 2,965.1 Non-current liabilities Post-employment benefit plans...... 90.4 97.9 Deferred tax liabilities ...... 65.6 67.8 Financial liabilities and payables ...... 1,145.2 1,212.3 Provisions for non current risks and charges ...... 103.2 110.0 Total non-current liabilities ...... 1,404.3 1,488.0 Current liabilities Financial payables ...... 588.8 686.3 Trade and other payables ...... 1,476.0 1,567.8 Provisions for current risks and charges ...... 71.2 115.8 Current tax liabilities ...... 46.7 57.7 Other financial liabilities ...... 58.2 51.8 Other current liabilities ...... 264.7 287.9 Total current liabilities ...... 2,505.7 2,767.4 Liabilities related to non-current assets held for sale ...... Total Liabilities ...... 3,910.0 4,255,4 Total shareholders' equity and liabilities ...... 6,928.0 7,220.5
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UNAUDITED CONSOLIDATED HALF-YEARLY INCOME STATEMENTS
For the six months ended 30 June 2013 2012(*) (Unaudited) (Amounts in euro millions) Sales of goods and services ...... 1,712.4 1,986.6 Other revenues and income ...... 24.5 12.8 Total net consolidated revenues ...... 1,737.0 1,999.3 Personnel expenses ...... 273.3 301.3 Purchases, services, other cost ...... 804.3 931.3 Amortisation, depreciation and write-downs ...... 525.8 621.2 Impairment losses and reversal of impairment on fixed assets ...... 0 0 Total costs ...... 1,603.4 1,853.8
EBIT ...... 133.6 145.6 Financial income/(losses) ...... (30.7) (29.5) Income/(expenses) from equity investments ...... (8.7) 4.3 EBT ...... 94.2 120.5 Income taxes ...... (40.8) (51.4) Net profit from continuing operations ...... 53.4 69.1 Net Gains/(Losses) from discontinued operations ...... 0 0 Net profit for the period ...... 53.4 69.1 Attributable to: - Equity shareholders of the parent company ...... 30.1 42.8 - Minority Interests ...... 23.3 26.4 Earnings per share - Basic (eur) ...... 0.03 0.04 - Diluted (eur) ...... 0.03 0.04 ______(*) The Income Statement data related to the six months ended 30 June 2012 have been restated in order to take into account, retrospectively from 1 January 2012, the impacts connected with the re-calculation of the accounting book values and the future useful lives of certain assets, which took place within the context of the final allocation process regarding the assets and liabilities acquired by the Group as a result of the business combination between the "Tower" businesses owned by the Mediaset Group and the DMT group.
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TAXATION
Republic of Italy
The statements herein regarding taxation are based on the laws in force in Italy as of the date of this Prospectus and are subject to any changes in law occurring after such date, which changes could be made on a retroactive basis. The following summary does not purport to be a comprehensive description of all of the tax considerations which may be relevant to a decision to subscribe for, purchase, own or dispose of the Notes and does not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers in securities or commodities) may be subject to special rules. Prospective purchasers of the Notes are advised to consult their own tax advisers concerning the overall tax consequences of their ownership of the Notes.
Tax treatment of the Notes
Legislative Decree No. 239 of 1 April 1996, as subsequently amended ("Decree No. 239") provides for the applicable regime with respect to the tax treatment of interest, premium and other income (including the difference between the redemption amount and the issue price) from Notes falling within the category of bonds (obbligazioni) or debentures similar to bonds (titoli similari alle obbligazioni), pursuant to Article 44 of Presidential Decree No. 917 of 22 December 1986 ("Decree No. 917") and issued, inter alia, by Italian listed companies.
Italian Resident Noteholders
Where an Italian resident Noteholder is (a) an individual not engaged in an entrepreneurial activity to which the Notes are connected (unless he has opted for the application of the risparmio gestito regime); (b) a non-commercial partnership; (c) a non-commercial private or public institution; or (d) an investor exempt from Italian corporate income taxation, interest, premium and other income relating to the Notes are subject to a withholding tax, referred to as imposta sostitutiva, levied at the rate of 20 per cent. In the event that a Noteholder described under (a) and (c) above is engaged in an entrepreneurial activity to which the Notes are connected, the imposta sostitutiva applies as a provisional tax.
An Italian resident individual Noteholder not engaged in an entrepreneurial activity who has opted for the so-called risparmio gestito is subject to a 20 per cent. annual substitute tax on the increase in value of the managed assets accrued at the end of each tax year (which increase would include interest, premium and other income accrued on the Notes). The substitute tax is applied on behalf of the taxpayer by the managing authorized intermediary. For more information, see "Tax treatment of the Notes—Capital Gains".
Where an Italian resident Noteholder is a company or similar commercial entity, or a permanent establishment in Italy of a foreign company to which the Notes are effectively connected, and the Notes are deposited with an authorized intermediary, interest, premium and other income from the Notes will not be subject to imposta sostitutiva, but must be included in the relevant Noteholder’s income tax return and are therefore subject to general Italian corporate taxation (and, in certain circumstances, depending on the "status" of the Noteholder, also to the regional tax on productive activities ("IRAP")).
Under the current regime provided by Law Decree No. 351 of 25 September 2001 converted into law with amendments by Law No. 410 of 23 November 2001 ("Decree No. 351"), as clarified by the Italian Revenues Agency (Agenzia delle Entrate) through Circular No. 47/E of 8 August 2003 and Circular No. 11/E of 28 March 2012, payments of interest, premiums or other proceeds in respect of the Notes made to Italian resident real estate investment funds established pursuant to Article 37 of Legislative Decree No. 58 of 24 February 1998 or pursuant to Article 14-bis of Law No. 86 of 25 January 1994, are subject neither to imposta sostitutiva nor to any other income tax in the hands of a real estate investment fund.
If the investor is resident in Italy and is an open-ended or closed-ended investment fund or an investment company with variable capital ("SICAV") established in Italy and either (i) the fund or SICAV or (ii) its manager is subject to the supervision of a regulatory authority ("Fund"), and the relevant Notes are held by an authorized intermediary, interest, premium and other income accrued during the holding period on such Notes will not be subject to imposta sostitutiva, but must be included in the management results of the Fund. The Fund will not be subject to taxation on such results but a substitute tax of 20 per cent. will
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apply, in certain circumstances, to distributions made in favor of unitholders or shareholders ("Collective Investment Fund Substitute Tax").
Where an Italian resident Noteholder is a pension fund (subject to the regime provided for by Article 17 of the Legislative Decree No. 252 of 5 December 2005 – "Decree No. 252") and the Notes are deposited with an authorized intermediary, interest, premium and other income relating to the Notes and accrued during the holding period will not be subject to imposta sostitutiva, but must be included in the result of the relevant portfolio accrued at the end of the tax period, to be subject to an 11 per cent. substitute tax.
Pursuant to Decree No. 239, imposta sostitutiva is applied by banks, SIMs, fiduciary companies, SGRs, stockbrokers and other entities identified by a decree of the Ministry of Finance (each an "Intermediary").
An Intermediary must (a) be resident in Italy or be a permanent establishment in Italy of a non-Italian resident financial intermediary and (b) intervene, in some way, in the collection of interest or in the transfer of the Notes. For the purpose of the application of the imposta sostitutiva, a transfer of Notes includes any assignment or other act, either with or without consideration, which results in a change of the ownership of the relevant Notes or in a change of the Intermediary with which the Notes are deposited.
Where the Notes are not deposited with an Intermediary, the imposta sostitutiva is applied and withheld by any entity paying interest to a Noteholder.
Non-Italian resident Noteholders
Where the Noteholder is a non-Italian resident without a permanent establishment in Italy to which the Notes are connected, an exemption from the imposta sostitutiva applies provided that the non-Italian resident beneficial owner is either (a) resident, for tax purposes, in a country which allows for a satisfactory exchange of information with Italy; or (b) an international body or entity set up in accordance with international agreements which have entered into force in Italy; or (c) a Central Bank or an entity which manages, inter alia, the official reserves of a foreign State; or (d) an institutional investor which is resident in a country which allows for a satisfactory exchange of information with Italy, even if it does not possess the status of taxpayer in its own country of residence.
The imposta sostitutiva will be applicable at the rate of 20 per cent. (or at the reduced rate provided for by the applicable double tax treaty, if any) to interest, premium and other income paid to Noteholders who are resident, for tax purposes, in countries which do not allow for a satisfactory exchange of information with Italy.
According to the Law No. 244 of 24 December 2007 (the "Budget Law 2008") a Decree still to be issued will introduce a new "white list" replacing the current "black list" system, so as to identify those countries which allow for a satisfactory exchange of information.
In order to ensure gross payment, non-Italian resident Noteholders must be the beneficial owners of the payments of interest, premium or other income and (a) directly or indirectly deposit, in a timely manner, the Notes with a resident bank or SIM, or a permanent establishment in Italy of a non-Italian resident bank or SIM or with a non-Italian resident entity or company participating in a centralized securities management system which is in contact, via computer, with the Ministry of Economy and Finance and (b) file with the relevant depository, prior to or concurrently with the deposit of the Notes, a statement of the relevant Noteholder, which remains valid until withdrawn or revoked, in which the Noteholder declares to be eligible to benefit from the applicable exemption from imposta sostitutiva. Such statement, which is not requested for international bodies or entities set up in accordance with international agreements which have entered into force in Italy nor in case of foreign Central Banks or entities which manage, inter alia, the official reserves of a foreign State, must comply with the requirements set forth by Ministerial Decree of 12 December 2001, as subsequently amended. Failure of a non-Italian resident Noteholder to timely comply with the mentioned procedures set forth in Decree No. 239 and in the relevant implementation rules will result in the application of imposta sostitutiva on interest, premium and other income payments to a non-resident Noteholder.
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Capital Gains
(a) Any gain obtained from the sale or redemption of the Notes would be treated as part of the taxable income (and, in certain circumstances, depending on the "status" of the Noteholder, also as part of the net value of the production for IRAP purposes) if realized by an Italian company or a similar commercial entity (including the Italian permanent establishment of foreign entities to which the Notes are connected) or Italian resident individuals engaged in an entrepreneurial activity to which the Notes are connected.
(b) Where an Italian resident Noteholder is (i) an individual holding the Notes not in connection with an entrepreneurial activity; (ii) a non-commercial partnership; or (iii) a non-commercial private or public institution, any capital gain realized by such Noteholder from the sale or redemption of the Notes is subject to an imposta sostitutiva, levied at the current rate of 20 per cent. Noteholders may set off losses with gains.
(c) In respect of the application of imposta sostitutiva, taxpayers may opt for one of the three regimes described below.
Under the tax declaration regime (regime della dichiarazione), which is the default regime for Italian resident individuals not engaged in an entrepreneurial activity to which the Notes are connected, the imposta sostitutiva on capital gains is chargeable, on a cumulative basis, on all capital gains, net of any incurred capital loss, realized by the Italian resident individual Noteholder holding the Notes not in connection with an entrepreneurial activity pursuant to all sales or redemptions of the Notes carried out during any given tax year. Italian resident individuals holding the Notes not in connection with an entrepreneurial activity must indicate the overall capital gains realized in any tax year, net of any relevant incurred capital loss, in the annual tax return and pay imposta sostitutiva on such gains together with any balance income tax due for such year. Capital losses in excess of capital gains may be carried forward against capital gains realized in any of the four succeeding tax years.
As an alternative to the tax declaration regime, Italian resident individual Noteholders holding the Notes not in connection with an entrepreneurial activity may elect to pay the imposta sostitutiva separately on capital gains realized on each sale or redemption of the Notes (risparmio amministrato regime). Such separate taxation of capital gains is allowed subject to (a) the Notes being deposited with Italian banks, SIMs or certain authorized financial intermediaries (including permanent establishments in Italy of foreign intermediaries) and (b) an express election for the risparmio amministrato regime being made in writing by the relevant Noteholder in a timely manner.
The depository is responsible for accounting for imposta sostitutiva in respect of capital gains realized on each sale or redemption of the Notes (as well as in respect of capital gains realized upon the revocation of its mandate), net of any incurred capital loss, and is required to pay the relevant amount to the Italian tax authorities on behalf of the taxpayer, deducting a corresponding amount from the proceeds to be credited to the Noteholder or using funds provided by the Noteholder for this purpose. Under the risparmio amministrato regime, where a sale or redemption of the Notes results in a capital loss, such loss may be deducted from capital gains subsequently realized, within the same securities management, in the same tax year or in the following tax years up to the fourth. Under the risparmio amministrato regime, the Noteholder is not required to declare the capital gains in the annual tax return.
Any capital gains realized by Italian resident individuals holding the Notes not in connection with an entrepreneurial activity who have entrusted the management of their financial assets, including the Notes, to an authorized intermediary and have opted for the so-called risparmio gestito regime will be included in the computation of the annual increase in value of the managed assets accrued, even if not realized, at year end, subject to a 20 per cent. substitute tax, to be paid by the managing authorized intermediary. Under the risparmio gestito regime, any depreciation of the managed assets accrued at year end may be carried forward against increase in value of the managed assets accrued in any of the four succeeding tax years. Under the risparmio gestito regime, the Noteholder is not required to declare the capital gains realized in the annual tax return.
Any capital gains realized by a Noteholder that is an Italian real estate fund to which the provisions of Decree No. 351 as subsequently amended apply will be subject neither to imposta sostitutiva nor to any other income tax at the level of the real estate investment fund.
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Any capital gains realised by a Noteholder which is a Fund will not be subject to imposta sostitutiva, but will be included in the result of the relevant portfolio. Such result will not be taxed with the Fund, but subsequent distributions in favor of unitholders of shareholders may be subject to the Collective Investment Fund Substitute Tax.
Any capital gains realized by a Noteholder that is an Italian pension fund (subject to the regime provided for by article 17 of Decree No. 252) will be included in the result of the relevant portfolio accrued at the end of the tax period, to be subject to the 11 per cent. substitute tax.
Capital gains realized by non-Italian resident Noteholders, not having a permanent establishment in Italy to which the Notes are connected, from the sale or redemption of Notes traded on regulated markets are neither subject to the imposta sostitutiva nor to any other Italian income tax.
Capital gains realized by non-Italian resident Noteholders from the sale or redemption of Notes not traded on regulated markets are not subject to the imposta sostitutiva, provided that the effective beneficiary: (a) is resident in a country which allows for a satisfactory exchange of information with Italy; or (b) is an international entity or body set up in accordance with international agreements which have entered into force in Italy; or (c) is a Central Bank or an entity which manages, inter alia, the official reserves of a foreign State; or (d) is an institutional investor which is resident in a country which allows for a satisfactory exchange of information with Italy, even if it does not possess the status of taxpayer in its own country of residence.
According to the Budget Law 2008, a Decree still to be issued will introduce a new "white list" replacing the current "black list" system, so as to identify those countries which (i) allow for a satisfactory exchange of information; and (ii) do not have a more favourable tax regime.
In order to ensure gross payment, non-Italian resident Noteholders must be the beneficial owners of the payments of Interest and must: (a) deposit, directly or indirectly, the Notes with a resident bank or SIM or a permanent establishment in Italy of a non-Italian resident bank or SIM or with a non-Italian resident entity or company participating in a centralised securities management system which is in contact, via computer, with the Ministry of Economy and Finance; and (b) file with the relevant depository, prior to or concurrently with the deposit of the Notes, a statement of the relevant Noteholder, which remains valid until withdrawn or revoked, in which the Noteholder declares to be eligible to benefit from the applicable exemption from imposta sostitutiva. This statement, which is not requested for international bodies or entities set up in accordance with international agreements which have entered into force in Italy nor in the case of foreign Central Banks or entities which manage, inter alia, the official reserves of a foreign State, must comply with the requirements set forth by Ministerial Decree of 12 December 2001.
If none of the conditions above are met, capital gains realized by non-Italian resident Noteholders from the sale or redemption of Notes not traded on regulated markets are subject to the imposta sostitutiva at the current rate of 20 per cent.
In any event, non-Italian resident individuals or entities without a permanent establishment in Italy to which the Notes are connected that may benefit from a double taxation treaty with Italy providing that capital gains realized upon the sale or redemption of Notes are to be taxed only in the country of tax residence of the recipient, will not be subject to imposta sostitutiva in Italy on any capital gains realized upon the sale or redemption of Notes.
Inheritance and gift taxes
Pursuant to Law Decree No. 262 of 3 October 2006, converted into Law No. 286 of 24 November 2006, as subsequently amended, the transfers of any valuable asset (including shares, notes or other securities) as a result of death or donation are taxed as follows:
(a) transfers in favor of spouses and direct descendants or direct ancestors are subject to an inheritance and gift tax applied at a rate of 4 per cent. on the value of the inheritance or the gift exceeding, for each beneficiary, Euro 1,000,000;
(b) transfers in favor of brothers/sisters are subject to the 6 per cent. inheritance and gift tax on the value of the inheritance or the gift exceeding, for each beneficiary, Euro 100,000; transfers in favor of relatives (parenti) to the fourth degree or direct relatives-in-law (affini in linea retta), indirect relatives-in-law (affini in linea collaterale) within the third degree other than the
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relatives indicated above are subject to an inheritance and gift tax at a rate of 6 per cent. on the entire value of the inheritance or the gift; and
(c) any other transfer is, in principle, subject to an inheritance and gift tax applied at a rate of 8 per cent. on the entire value of the inheritance or the gift.
If the transfer is made in favor of persons with severe disabilities, the tax is levied to the rate mentioned above on the value exceeding Euro 1,500,000.
Transfer tax
Contracts relating to the transfer of securities are subject to a Euro 168 registration tax as follows: (i) public deeds and notarised deeds are subject to mandatory registration; and (ii) private deeds are subject to registration only in the case of voluntary registration.
Stamp duty
Pursuant to Article 13 (note 3-ter) of Presidential Decree No. 642 of 26 October 1972 (the "Presidential Decree No. 642"), a proportional stamp duty applies on an annual basis to any periodic reporting communications which may be sent by a financial intermediary to a Noteholder in respect of any Notes which may be deposited with such financial intermediary. The stamp duty applies at a rate of 0.15 per cent and is determined on the basis of the market value or – if no market value figure is available – the nominal value or redemption amount of the Notes held. The stamp duty can be no lower than Euro 34.20. If the Noteholder is not an individual it cannot exceed Euro 4,500.
Based on the wording of the law and the implementing decree issued by the Italian Ministry of Finance on 24 May 2012, the stamp duty applies to any investor who is a client (as defined in the regulations issued by the Bank of Italy on 9 February 2011) – regardless of the fiscal residence of the investor – of an entity that exercises in any form a banking, financial or insurance activity within the Italian territory.
Wealth Tax on securities deposited abroad
Pursuant to Article 19(18) of Decree No. 201 of 6 December 2011, Italian resident individuals holding the Notes outside the Italian territory are required to pay an additional tax at a rate of 0.15 per cent.
This tax is calculated on the market value of the Notes at the end of the relevant year or – if no market value figure is available – the nominal value or the redemption value of such financial assets held outside the Italian territory. Taxpayers are entitled to an Italian tax credit equivalent to the amount of wealth taxes paid in the State where the financial assets are held (up to an amount equal to the Italian wealth tax due).
Tax Monitoring
Pursuant to Law Decree No. 167 of 28 June 1990, individuals, non-profit entities and certain partnerships (in particular, società semplici or similar partnerships in accordance with Article 5 of Decree No. 917) resident in Italy under certain conditions are required to report in their yearly income tax declaration, for tax monitoring purposes:
(a) the amount of securities (including the Notes) held abroad at the end of each tax year, if in excess of Euro 10,000 in the aggregate; and
(b) the amount of any transfers from abroad, sent abroad and occurring abroad, related to such securities, that occurred during each tax year, if exceeding Euro 10,000 in the aggregate, even if at the end of the tax year the securities are no longer held by such investors.
The above persons are, however, not required to comply with the above reporting requirements in respect of Notes deposited for management with qualified Italian financial intermediaries.
EU Savings Tax Directive
Under the EU Savings Tax Directive, each Member State is required to provide to the tax authorities of another Member State details of payments of interest or other similar income paid by a paying agent (within the meaning of the EU Savings Directive) within its jurisdiction to, or collected by a paying agent
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for an individual resident or certain limited types of entity established in that other Member State; however, for a transitional period, Austria and Luxembourg are instead required to operate a withholding system with the rate of withholding currently at 35 per cent. unless during this transitional period they elect to abolish the withholding system in favour of automatic information exchange under the Directive. In April 2013, the Luxembourg Government announced its intention to abolish the withholding system with effect from 1 January 2015, in favour of this automatic information exchange.
In any case, the transitional period is to terminate at the end of the first full tax year following agreement by certain non-EU countries to the exchange of information relating to such payments. A number of non- EU countries, including Switzerland and certain dependent or associated territories of certain Member States, have agreed to adopt similar measures (either provision of information or transitional withholding) in relation to payments made by a paying agent within its jurisdiction to, or collected by such a paying agent for an individual resident or certain limited types of entity established in a Member State. In addition, the Member States have entered into provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a paying agent in a Member State to, or collected by such a paying agent for an individual resident or certain limited types of entity established in one of those territories.
The European Commission has proposed certain amendments to the EU Savings Tax Directive, which may, if implemented, amend or broaden the scope of the requirements described above. Investors who are in any doubt as to their position should consult their professional advisers.
Implementation in Italy of the EU Savings Directive
Italy has implemented the EU Savings Tax Directive through Legislative Decree No. 84 of 18 April 2005 ("Decree No. 84"). Under Decree No. 84, subject to a number of important conditions being met, for interest paid from 1 July 2005 to individuals which qualify as beneficial owners of the interest payment and are resident for tax purposes in another Member State, Italian qualified paying agents shall report to the Italian Tax Authorities details of the relevant payments and personal information on the individual beneficial owner and shall not apply the withholding tax provided by the above mentioned EU Savings Tax Directive. Such information is transmitted by the Italian Tax Authorities to the competent foreign tax authorities of the State of residence of the beneficial owner.
Either payments of interest on the notes or the realisation of the accrued interest through the sale of the notes would constitute "payments of interest" under article 6 of the directive and, as far as Italy is concerned, article 2 of Decree No. 84. Accordingly, such payments of interest arising out of the covered bonds would fall within the scope of the directive.
The proposed European financial transactions tax ("FTT")
The European Commission has published a proposal for a Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the "participating Member States"). Such proposal was approved by the European Parliament on 3 July 2013.
The proposed FTT has very broad scope and could, if introduced in its current form, apply to certain dealings in the Notes (including secondary market transactions) in certain circumstances.
Under current proposals the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the Notes where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, "established" in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.
The FTT proposal remains subject to negotiation between the participating Member States and is the subject of legal challenge. The FTT proposal may be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of the Notes are advised to seek their own professional advice in relation to the FTT.
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SUBSCRIPTION AND SALE
The Joint Lead Managers have, in a subscription agreement dated 23 October 2013 (the "Subscription Agreement") and made between the Issuer and the Joint Lead Managers upon the terms and subject to the conditions contained therein, jointly and severally agreed to subscribe for the Notes at their issue price of 99.463 per cent. of their principal amount less combined commissions to be paid by the Issuer as set forth in the Subscription Agreement. The Issuer has also agreed to reimburse the Joint Lead Managers for certain of its expenses incurred in connection with the management of the issue of the Notes. The Joint Lead Managers are entitled in certain circumstances to be released and discharged from their obligations under the Subscription Agreement prior to the closing of the issue of the Notes.
United States of America
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S.
The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the United States Internal Revenue Code and regulations thereunder.
Each Joint Lead Manager has agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Notes, (a) as part of their distribution at any time or (b) otherwise, until 40 days after the later of the commencement of the offering and the issue date of the Notes, within the United States or to, or for the account or benefit of, U.S. persons, and that it will have sent to each dealer to which it sells Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S.
In addition, until 40 days after commencement of the offering, an offer or sale of Notes within the United States by a dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.
United Kingdom
Each Joint Lead Manager has represented, warranted and undertaken that:
(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the "FSMA") received by it in connection with the issue or sale of the Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and
(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
Republic of Italy
The offering of the Notes has not been registered with the Commissione Nazionale per le Società e la Borsa ("CONSOB") pursuant to Italian securities legislation and, accordingly, each Joint Lead Manager has represented and agreed that no Notes may be offered, sold or delivered nor may copies of the Prospectus or any other document relating to the Notes be distributed in the Republic of Italy, except:
(a) to qualified investors (investitori qualificati) as defined in Article 34-ter, first paragraph, letter b) of Commissione Nazionale per le Società e la Borsa ("CONSOB") Regulation No. 11971 of 14 May 1999, as amended ("Regulation No. 11971"); or
(b) in circumstances where an exemption from the rules governing public offers of securities applies, pursuant to Article 100 of Decree No. 58 of 24 February 1998, as amended and Article 34-ter, first paragraph of CONSOB Regulation No. 11971.
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Any such offer, sale or delivery of the Notes or distribution of copies of this Prospectus or any other document relating to the Notes in the Republic of Italy in compliance with the selling restrictions under (a) and (b) above must be:
(c) made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with Legislative Decree No. 58 of 24 February 1998, CONSOB Regulation No. 16190 of 29 October 2007 and Legislative Decree No. 385 of 1 September 1993 (in each case as amended from time to time); and
(d) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or any other Italian authority.
General
Each Joint Lead Manager has agreed that it will obtain any consent, approval or permission which is required for the offer, purchase or sale by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such offers, purchases or sales and it will comply with all such laws and regulations. Persons into whose hands this Prospectus comes are required by the Issuer and the Joint Lead Managers to comply with all applicable laws and regulations in each country or jurisdiction in which they purchase, offer, sell or deliver Notes or possess, distribute or publish this Prospectus or any other offering material relating to the Notes, in all cases at their own expense.
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GENERAL INFORMATION
Authorisation
The creation and issue of the Notes has been authorised by a resolution of the Board of Directors of the Issuer dated 1 August 2013.
Listing and Admission to Trading
The CSSF has approved this Prospectus as a prospectus for the purposes of the Prospectus Directive and the relevant implementing measures in Luxembourg. Application has been made to the Luxembourg Stock Exchange for the Notes to be admitted to trading on the Luxembourg Stock Exchange's regulated market and to be listed on the Official List of the Luxembourg Stock Exchange. The Luxembourg Stock Exchange's regulated market is a regulated market for the purposes of the Markets in Financial Instruments Directive (Directive 2004/39/EC, as amended).
Expenses Related to Admission to Trading
The total expenses related to admission to trading are estimated at €8,810.
Use of Proceeds
The net proceeds of the issue of the Notes will be used by the Issuer to diversify the Group's funding sources and optimise the profile of the relative long-term maturities and may be used for refinancing existing indebtedness (including the repayment, in whole or in part, of certain loans extended to the Issuer by some of the Joint Lead Managers or other entities within the groups to which such Joint Lead Managers belong (as further described in "Potential Conflicts of Interest" below)).
Legal and Arbitration Proceedings
Save as disclosed in "Description of the Issuer – Legal Proceedings" on pages 61-62 of this Prospectus, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened, of which the Issuer is aware), which may have, or have had during the 12 months prior to the date of this Prospectus, a significant effect on the financial position or profitability of the Group.
Significant/Material Change
Since 31 December 2012 there has been no material adverse change in the prospects of the Issuer and, since 30 June 2013, there has been no significant change in the financial or trading position of the Group.
Material Contracts
As at the date of this Prospectus, neither the Issuer nor any of its Subsidiaries has entered into any contracts outside the ordinary course of business that have been or may be reasonably expected to be material to their ability to meet their obligations to Noteholders.
Auditors
The consolidated financial statements of the Issuer as at and for the years ended 31 December 2012 and 31 December 2011 have been audited without qualification by Reconta Ernst & Young S.p.A., Via della Chiusa, 2, 20123 Milan, Italy. Reconta Ernst & Young S.p.A. is registered under No. 2 in the special register (albo speciale) maintained by CONSOB and set out under Article 161 of Legislative Decree No. 58 of 24 February 1998 (as amended) and under No. 70945 in the Register of Accountancy Auditors (Registro dei Revisori Contabili) in compliance with the provisions of Legislative Decree No. 88 of 27 January 1992.
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Documents on Display
For so long as the Notes remain outstanding, physical or electronic copies of the following documents (together, where appropriate, with English translations) may be inspected during normal business hours at the offices of the Fiscal Agent at 33, rue de Gasperich, Howald – Hesperange, L-2085 Luxembourg:
(a) the by-laws (Statuto) of the Issuer;
(b) the Subscription Agreement;
(c) the Fiscal Agency Agreement;
(d) the Deed of Covenant; and
(e) the Issuer's 2012 and 2011 Annual Reports and the Issuer's Half-year Report as at 30 June 2013.
In addition, the Issuer's 2012 and 2011 Annual Reports and the Issuer's Half year Report as at 30 June 2013 will be available, without charge, on the website of the Luxembourg Stock Exchange (www.bourse.lu).
Potential Conflicts of Interest
Certain of the Joint Lead Managers and their affiliates (including their parent companies) have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may have performed (or may in the future perform) services for, or may have provided (or may in the future provide) financing to, the Issuer and its subsidiaries in the ordinary course of business.
In addition, in the ordinary course of their business activities, the Joint Lead Managers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Issuer or the Issuer's affiliates or any entity related to the Notes. Certain of the Joint Lead Managers and their affiliates that have a lending relationship with the Issuer routinely hedge their credit exposure to the Issuer consistent with their customary risk management policies. Typically, such Joint Lead Managers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in the Issuer's securities, including potentially the Notes offered hereby. Any such short positions could adversely affect future trading prices of the Notes offered hereby. In particular (i) Intesa Sanpaolo S.p.A., the parent company of Banca IMI S.p.A., one of the Joint Lead Managers under the Notes, has made significant financing to the Issuer and its parent and subsidiary companies and has a conflict of interest in as much as part of the proceeds from the issue of the Notes may be used to repay previous loans granted to the Issuer, (ii) Mediobanca—Banca di Credito Finanziario S.p.A. ("Mediobanca"), one of the Joint Lead Managers, is one of the lenders to the Issuer and its group companies and (iii) UniCredit S.p.A., the parent company of UniCredit Bank AG, one of the Joint Lead Managers under the Notes, has made significant financing to the Issuer and its parent and subsidiary companies, is one of its main financial lenders and has a conflict of interest in as much as part of the proceeds from the issue of the Notes may be used to repay previous loans granted to the Issuer. In addition, Fininvest S.p.A. – parent company of the Issuer - has a direct shareholding of 2.06 per cent. in Mediobanca. The Joint Lead Managers and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. For the avoidance of doubt, the term "affiliates" includes also parent companies.
Yield
On the basis of the issue price of the Notes of 99.463 per cent. of their principal amount, the gross real yield of the Notes is 5.250 per cent. on an annual basis.
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Legend Concerning US Persons
The Notes and any Coupons appertaining thereto will bear a legend to the following effect:
"Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code".
ISIN and Common Code
The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The ISIN is XS0985395655 and the common code is 098539565. The address of Euroclear is 1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium and the address of Clearstream, Luxembourg is 42 Avenue JF Kennedy, L-1855 Luxembourg.
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REGISTERED OFFICE OF THE ISSUER
Via Paleocapa, 3 20121 Milan Italy
FISCAL AGENT AND PAYING AGENT
BNP Paribas Securities Services, Luxembourg Branch 33, rue de Gasperich Howald – Hesperange L-2085 Luxembourg
LEGAL ADVISERS
To the Issuer as to Italian law:
Chiomenti Studio Legale Via XXIV Maggio, 43 00187 Rome Italy
To the Joint Lead Managers as to English and Italian law:
Clifford Chance Studio Legale Associato Piazzetta M. Bossi, 3 20121 Milan Italy
AUDITORS TO THE ISSUER
Reconta Ernst & Young S.p.A. Via Della Chiusa 2 20123 Milan Italy
LUXEMBOURG LISTING AGENT
BNP Paribas Securities Services, Luxembourg Branch 33, rue de Gasperich Howald – Hesperange L-2085 Luxembourg
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