UPDATE DOCUMENT RCS MediaGroup S.p.A.
Third Addendum to the Fairness Opinion
issued for
the Board of Directors of
RCS MediaGroup S.p.A.
on 9 June 2016
relating to the
INCREASE OF THE OFFER PRICE
OF THE TOTAL VOLUNTARY PUBLIC EXCHANGE OFFER
for the common shares of
bidder
Prof. Roberto TASCA Page 1
UPDATE DOCUMENT RCS MediaGroup S.p.A.
Milan, 11 July 2016
To: The Board of Directors of RCS MediaGroup S.p.A. Via Angelo Rizzoli 8 20132 Milan
SUBJECT:
Third Addendum to the Fairness Opinion issued on 9 June 2016 regarding the increase in the consideration offered for the Total Voluntary Public Exchange Offer for No. 521,864,957 common shares of RCS MediaGroup S.p.A. made by Cairo Communication S.p.A. with a notice pursuant to Articles 102 and 106, paragraph 4 of Legislative Decree no. 58 of 24 February 1998 and Article 37 of the CONSOB Regulation approved by Resolution No. 11971 of 14 May 1999.
Introduction
Considering that:
1) on 8 April 2016, Cairo Communication S.p.A. (“Cairo” or the “Bidder”) made a voluntary public exchange offer (the “Cairo Offer” or “OPSC” [Offerta Pubblica di Scambio] – Public Exchange Offer) for all of the common shares of RCS MediaGroup S.p.A. (“RCS,” the “Issuer,” or the “Company”), which amounted to No. 521,864,957 shares, for a consideration (the “Cairo Consideration”) of No. 0.12 common shares of Cairo for each common share of RCS;
2) on 9 June 2016, the undersigned, Prof. Roberto Tasca, issued a Fairness Opinion on the Cairo Offer (the “Cairo Fairness”) stating that the Cairo Consideration was NOT FAIR for all of the RCS shareholders;
3) on 17 June 2016, Cairo increased its bid by raising the exchange ratio (the “Increase to the Cairo Consideration”) to No. 0.16 common shares of Cairo for each common share of RCS;
Prof. Roberto TASCA Page 2
UPDATE DOCUMENT RCS MediaGroup S.p.A.
4) at the same time as the Increase to the Cairo Consideration, Cairo approved a 2017-2018 Business Plan on a stand alone basis (the “Cairo Business Plan”), disclosing to the market only certain summary figures regarding its Sales, EBITDA, and CAPEX; 5) on 24 June 2016, the undersigned, Prof. Roberto Tasca, issued a first addendum to the Cairo Fairness (the “Addendum to the Cairo Fairness”), stating that the Increase to the Cairo Consideration was NOT FAIR for all of the RCS shareholders;
6) on 1 July 2016, Cairo promoted a further increase to the Increase to the Cairo Consideration (the “Second Increase to the Cairo Consideration” or “Second OPSC increased Bid”), in which it raised the exchange ratio to No. 0.17 common shares of Cairo for each common share of RCS;
7) on 7 July 2016, the undersigned, Prof. Roberto Tasca, issued a second addendum to the Cairo Fairness (the “Second Addendum to the Cairo Fairness”), stating that the Increase to the Cairo Consideration was NOT FAIR for all of the RCS shareholders;
8) on 8 July 2016, Cairo made a further increase to the Second Increase to the Cairo Consideration (the “Third Increase to the Cairo Consideration” or “Third OPSC Increased Bid”), in which it raised the exchange ratio to No. 0.18 common shares of Cairo (the “Third Exchange Ratio”), plus a cash amount equal to EUR 0.25 (the “Cash Consideration”) for each ordinary share of RCS brought to the Cairo Offer; the Board of Directors of RCS asked the undersigned, Prof. Roberto Tasca, to prepare a third update (the “Third Updated Cairo Document,” or the “Third Addendum to the Cairo Fairness”) to the opinions expressed on 9 June 2016, 24 June 2016 and 7 July 2016, on the basis of the Third Increase to the Cairo Consideration.
The Third Updated Cairo Document provides support to the Independent Directors and the Board of Directors of RCS in their evaluation of the fairness of the Third Increase to the Cairo Consideration. In particular, the details of the Third Increase to the Cairo Consideration, on which basis the drafting of this Addendum was requested, are as follows:
• Issuer: Rizzoli Corriere della Sera MediaGroup S.p.A., with registered office in via Angelo Rizzoli 8, Milan.
Prof. Roberto TASCA Page 3
UPDATE DOCUMENT RCS MediaGroup S.p.A.
• Bidder: Cairo Communication S.p.A., with registered office at Via Tucidide 56, 20134 Milan, the parent company of the group founded by Urbano Cairo.
• Subject: The No. 521.864.9571 common shares of RCS, listed on the MTA (Mercato Telematico Azionario), organized and managed by Borsa Italiana S.p.A., which represent 100% of the share capital of RCS.
• The Third Increase to the Cairo Consideration is equal to No. 0.18 (zero point eighteen) common shares of Cairo plus a Cash Consideration of EUR 0.25 (zero point twentyfive) for each common share of RCS tendered to the Cairo Offer.
• As specified in the Notice of an Increase in Consideration dated 8 July 2016, on the basis of the official price of Cairo shares recorded on 7 April 2016, the day prior to the announcement of the Cairo Offer, the Third Increase to the Cairo Offer implies a valuation of EUR 1.0402 for each share of RCS tendered to the Cairo Offer. Based on the official price of Cairo shares recorded on 8 July 2016, the Third Increase to the Cairo Consideration implies a valuation of EUR 1.0242 for each share of RCS tendered to the Cairo Offer. In the event of a full consent to the Cairo Offer, Cairo will issue No. 93,935,692 new shares for the RCS shares brought to the Cairo Offer, and it will make a total disbursement for the Cash Consideration of EUR 130,466,239.25.
1 Please recall that the Company holds No. 4,575,114 treasury shares.
Prof. Roberto TASCA Page 4
UPDATE DOCUMENT RCS MediaGroup S.p.A.
Assignment’s execution
Because the Bidder has not provided any new information to the market, the Third Addendum to the Cairo Fairness expresses considerations on the basis of the analyses already conducted for the Cairo Fairness, the Addendum to the Cairo Fairness, and the Second Addendum to the Cairo Fairness.
The additional element that must be considered to form a fairness opinion with regard to the documentation previously issued by the undersigned is the Cash Consideration added to the Third Exchange Ratio, which entails an Offer Portfolio for RCS shares that we can define as follows:
No. 0.18 x 1 common share of Cairo + EUR 0.25 = 1 common share of RCS
Which equals:
No. 0.18 x 1 common share of Cairo = 1 common share of RCS - EUR 0.25
No. 0.18 = (1 common share of RCS - EUR 0.25) / 1 common share of Cairo [1]
Therefore, in developing this additional fairness opinion, one must take this new situation into account, in which each individual shareholder who intends to tender a share of RCS will receive a fraction equal to 0.18 of one Cairo share plus EUR 0.25. In function of the equation illustrated in [1] above, this consideration will be considered as a value to be subtracted from:
- the weighted average prices of RCS, defined on the basis of the historic series of Stock Market quotations considered in the Fairness Opinion,
It must be said that the estimates of the fundamental value of Cairo shares contain an implicit hypothesis by which there is a condition of equality between the reduction of the Bidder’s net financial position following the payment of the Cash Consideration and the resulting purchase
Prof. Roberto TASCA Page 5
UPDATE DOCUMENT RCS MediaGroup S.p.A.
value of RCS’ equity. This is because, in view of the fundamental values of RCS shares determined on the basis of the DCF, the potential acquisition by Cairo is believed to be at a fair market price.2
This assumption entails the invariance of the value of Cairo shares pre- and post-acquisition, as this produces a substituting effect between the lower net financial position post-acquisition and the value of the residual asset represented by the equity interest that may be acquired if the Cairo Offer is successfully concluded.
In light of the foregoing, the structure of the valuation process is as follows:
First of all, the criteria used in the Cairo Fairness authored by the undersigned on 9 June 2016 are confirmed for the weighted average prices, which were determined on the basis of historic Stock Exchange Quotations in the period from 8 April 2015 to 7 April 2016, the premiums drawn from historic PTOs conducted in Italy between 2010 and 2016, and the analyst target prices in the period from 8 April 2015 to 7 April 2016. The weighted average prices of RCS shares used on that occasion must be adjusted (reduced) by the Cash Consideration (EUR 0.25).
Secondly, the quantifications made in the Addendum to the Cairo Fairness regarding the estimated fundamental value of the Bidder, obtained by applying the market multiples method to the economic amounts included in the Cairo Business Plan Cairo and disclosed to the market, are confirmed. For the purpose of determining the exchange rate, these amounts are compared with the range of fundamental values determined for RCS using the DCF method, these values having been adjusted (reduced) by the Cash Consideration (EUR 0.25).
Therefore, the structure of this document can be broken down as follows:
- a recalculation and summary of the valuations expressed in the Cairo Fairness, including the Cash Consideration offered; - a recalculation and summary of the valuations expressed in the Addendum to the Cairo Fairness, including the Cash Consideration offered;
2 When we define the range of fundamental values for RCS shares between 0.80 and 1.13, an acquisition that provides for a Cash Consideration of EUR 0.25 and an exchange ratio of 0.18 should be defined as fair for a range of values for common shares of Cairo between a minimum of EUR:
(0.80-0.25)/0.18 = 3.06 and a maximum of EUR: (1.13-0.25)/0.18 = 4.88
Where the average fundamental value of RCS equals EUR 0.95, the average fundamental value of Cairo would be EUR:
(0.95-0.25)/0.18 = 3.89
Prof. Roberto TASCA Page 6
UPDATE DOCUMENT RCS MediaGroup S.p.A.
- final conclusions on the Third Increase to the Cairo Consideration.
Updated Summary of Valuations regarding the Third Increase to the Cairo Consideration
Recalculation and summary of the valuations expressed in the Cairo Fairness
In this section, we recall the valuations that were already expressed in the Fairness Opinion of 9 June 2016, which are re-determined on the basis of the Third Increase to the Cairo Consideration and the Cash Consideration offered for each share of RCS brought to the Cairo Offer:
1) Based on the historic series of weighted average prices (WAP) for the period between 8 April 2015 and 7 April 2016 (which is the “Historic series of market prices weighted by the volumes traded pre-announcement”), which were calculated using the Stock Market quotations, the implied exchange rate was determined for periods of time ranging from 12, 6, 3, 1 month, and 1 day between common shares of RCS, at the net of the Cash Consideration of EUR 0.25, and common shares of Cairo. For reasons of liquidity and the simultaneity of the underlying quotations, the 6 month and 3 month interval was used as a reference for the valuation.
1 – Exchange rates with an WAP between April 2015 and April 2016 RCS WAP – EUR 0.25 Cairo Exchange Div – Period RCS WAP Cairo EX WAP Cairo Exchange Div EUR 0.25 cash 12 months 0.76 0.51 4.44 0.17 0.11 6 months 0.59 0.34 4.10 0.14 0.08 3 months 0.55 0.30 3.97 0.14 0.08 1 month 0.49 0.24 4.32 0.11 0.06 1 day 0.42 0.17 4.39 0.09 0.04
2) The figures generated in point 1 were then compared with a sampling of voluntary PTOs launched between January 2010 and February 2016 on the basis of their “pre-announcement” prices. This comparison determined the exchange ratio for the Cairo Offer for the case of an application of the average premiums and discounts from the sampling of voluntary PTOs examined to the results achieved under point 1. Therefore, the Cash Consideration was deducted from the RCS WAP, which had already been increased by the average premium pre- PTO announcement; this value was then divided by the value of Cairo shares.
Prof. Roberto TASCA Page 7
UPDATE DOCUMENT RCS MediaGroup S.p.A.
2 – Exchange rates with pre-announcement premiums Average premiums Cairo Exchange Div – Period RCS aWP Cairo EX WAP Cairo Exchange Div pre-announcement EUR 0.25 cash 12 months 40% 0.76 4.44 0.24 0.18 6 months 40% 0.59 4.10 0.20 0.14 3 months 35% 0.55 3.97 0.19 0.12 1 month 36% 0.49 4.32 0.15 0.10 1 day 16% 0.42 4.39 0.11 0.05
3) Lastly, an analysis was performed of the target prices taken from Bloomberg in a blind version, based on the indications provided by the analysts covering the stocks involved in the Cairo Offer in the period from 8 April 2015 to 7 April 2016, determining the implied exchange ratio in the comparison between the minimum and maximum prices of the two stocks. Recall in this case as well that the value of RCS shares was reduced by an amount equal to the Cash Consideration.
3 – Exchange rates with analyst consensus
Average exchange Maximum exchange Minimum exchange Period rate ex rate ex rate ex 12 MONTHS 0.20 0.23 0.16 6 MONTHS 0.17 0.20 0.16 3 MONTHS 0.15 0.15 0.15 1 MONTH 0.16 0.16 0.16 1 DAY 0.16 0.16 0.16
3 – Exchange rates with analyst consensus – EUR 0.25 cash
Average exchange Maximum exchange Minimum exchange Period rate ex rate ex rate ex 12 MONTHS 0.15 0.19 0.11 6 MONTHS 0.12 0.15 0.11 3 MONTHS 0.10 0.10 0.10 1 MONTH 0.11 0.11 0.11 1 DAY 0.1 0.11 0.11
Recalculation and summary of the valuations expressed in the Addendum to the Cairo Fairness
Part Two recalls the comparison between the fundamental value of RCS and the estimated fundamental value of Cairo, which was conducted using the market multiples method. The range of RCS’ fundamental values was re-determined on the basis of the Third Increase to the Cairo Consideration and the Cash Consideration offered for each common share of RCS brought to the Cairo Offer.
These valuations are based on the following assumptions:
Prof. Roberto TASCA Page 8
UPDATE DOCUMENT RCS MediaGroup S.p.A.
1) a company’s fundamental value can be determined using various methods, but the most commonly used calculation method in theory and practice is the “Discounted Cash Flow” or “DCF” method;
2) the fundamental values are defined on the basis of the prospective cash flows, which are in turn defined on the basis of multi-year plans approved by a company’s executive bodies;
3) all economic or capital information disclosed by a company subject to valuation is a non- negligible source of information;
4) the valuation method that uses the multiples of comparable companies is often used for control purposes; therefore, it is an essential complement to the other methods used to verify the fairness of the valuations;
5) the estimate made using the multiples method depends on the sampling selected; therefore, this sampling must be as “comparable” as possible with the company being valued.
Given that, unlike for RCS, we lack multi-year economic and capital prospectuses for Cairo to construct prospective cash flows, the valuations expressed consist of a comparison between the fundamental value of RCS made using the DCF method, re-determined on the basis of the Third Increase to the Cairo Consideration and the Cash Consideration offered for each common share of RCS brought to the Cairo Offer, and the estimated fundamental value of Cairo made using the market multiples method.
The valuation process set forth in the Addendum to the Cairo Fairness and recalled herein consists of the following steps:
1) the determination of the fundamental value of RCS using the DCF method and the subsequent adjustment for the Cash Consideration of EUR 0.25;
2) the identification of the sampling of companies comparable to Cairo;
3) the estimated fundamental value of Cairo using the market multiples method; this estimate will provide evidence of the cash supplement of EUR 0.25 that Cairo has added to the Offer;
4) the comparison of the two companies’ fundamental values;
Prof. Roberto TASCA Page 9
UPDATE DOCUMENT RCS MediaGroup S.p.A.
5) the verification of the quantifications obtained.
1) Estimated fundamental value of RCS using the DCF method
Based on the assumptions used in the DCF method, a value of RCS shares was calculated by varying both the weighted average cost of capital and the growth rate by +/- 50 bps. This sensitivity led to a quantification of a range of values for shares of RCS between EUR 0.80 and EUR 1.13, and an average value of EUR 0.95. The Cash Consideration must be deducted from this range of values:
Value of RCS Shares MINIMUM AVERAGE MAXIMUM DCF: value of RCS shares 0.80 0.95 1.13 Adjustment for Cash Consideration (0.25) (0.25) (0.25) Adjusted value of RCS shares 0.55 0.70 0.88
2) Identification of the sampling of comparable companies
Using the verified assumption that Cairo operates in the magazine and book publishing and television sectors, two clusters of comparable companies were chosen:
• the first was the one used to define the average multiples of RCS in support of the values obtained using the DCF method, substituting Cairo with RCS in the Cairo Fairness;
• the second arises from the construction of an weighted average multiple among the comparable companies in the Publishing and Broadcasting sectors. The weighting criteria was defined on the basis of the composition of Cairo’s EBITDA in the first quarter of 2016 (80% Publishing - 20% Broadcasting). The source of the figures is the same that has been used in all the Fairness Opinions issued until now by the undersigned.
Below are the details:
Prof. Roberto TASCA Page 10
UPDATE DOCUMENT RCS MediaGroup S.p.A.
EV/SALES EV/EBITDA Basket Publishing 31-Dec-16 31- Dec -17 31- Dec -18 31- Dec -16 31- Dec -17 31- Dec -18 Arnoldo Mondadori Editore S.p.A. 0,37x 0,36x 0,36x 5,23x 4,64x 4,49x Il Sole 24 Ore S.p.A. 0,27x 0,26x 0,26x 11,35x 8,26x 6,99x Gruppo Editoriale L'Espresso SpA 0,64x 0,64x 0,65x 6,39x 6,09x 5,36x Vocento, S.A. 0,57x 0,57x 0,57x 6,15x 5,03x 4,66x RCS MediaGroup S.p.A. 0,84x 0,83x 0,82x 9,17x 8,20x 6,79x Promotora de Informaciones SA 1,64x 1,60x 1,55x 8,07x 7,38x 6,92x AVERAGE 0,72x 0,71x 0,70x 7,73x 6,60x 5,87x weighted percentage of 1st Quarter 2016 80,0% 80,0% 80,0% 80,0% 80,0% 80,0% Publishing figures Basket BROADCASTING 31- Dec -16 31- Dec -17 31- Dec -18 31- Dec -16 31- Dec -17 31- Dec -18 Mediaset S.p.A. 1,75x 1,69x 1,64x 10,15x 8,78x 7,25x Television Francaise 1 SA 0,74x 0,72x 0,70x 8,11x 6,47x 6,75x ProSiebenSat.1 Media SE 2,95x 2,73x 2,51x 10,84x 10,07x 9,47x Metropole Television SA 1,40x 1,38x 1,37x 5,94x 5,36x 5,22x Atresmedia de Medios de Comunicacion SA 2,39x 2,29x 2,20x 11,75x 10,97x 9,60x ITV plc 2,69x 2,59x 2,51x 8,98x 8,47x 8,04x Modern Times Group AB 1,02x 0,96x 0,90x 10,76x 9,76x 9,14x AVERAGE 1,85x 1,77x 1,69x 9,50x 8,55x 7,92x weighted percentage of 1st Quarter 2016 NON- 20,0% 20,0% 20,0% 20,0% 20,0% 20,0% Publishing figures WEIGHTED AVERAGE MULTIPLES 0,95x 0,92x 0,90x 8,08x 6,99x 6,28x
3) Estimated fundamental value of Cairo using the market multiples method
The figures provided by Cairo, together with the multiples presented, led to the quantification of the estimated fundamental value of Cairo3.
CAIRO VALUATION 2017E 2018E
Sales 263.0 289,0
Enterprise value with the Publishing multiple 186,8 202,3
Enterprise value with the weighted average multiple 242,3 259,6
EBITDA 33,0 46,0
Adjustment for investment in television rights from BP 2017-2018 3,8 8,4
Adjusted EBITDA 29,2 37,6
Enterprise value with the average multiple 192,7 220,9
Enterprise value with the weighted average multiple 225,7 272,5
3 The only adjustment made was to the method for accounting for the incremental television rights in relation to the capital expenses highlighted, which were imputed as net expenses to be deducted from the EBITDA indicated in the Cairo Business Plan. These rights were imputed at the net of the tax effects and deducted from the EBITDA so that the amount would comply with the criteria used for the companies that form the clusters considered.
Prof. Roberto TASCA Page 11
UPDATE DOCUMENT RCS MediaGroup S.p.A.
Beginning with the Enterprise Values, and adjusting them for the net financial position (1Q 2016), employee benefits (at 31/12/2015), deferred taxes accrued, and minorities (both at 31/12/2015), we were able to calculate the per share value of Cairo. Below is a detailed description of the results:
Cairo Value with EV/Sales 2017 Cairo Value with EV/EBITDA 2017
Valore Cairo con multiplo Sales 2017 Publish MMP Valore Cairo con multiplo Ebitda 2017 Publish MMP EV attualizzato con multiplo Sales 2017 186,8 242,3 EV attualizzato con multiplo Ebitda 2017 192,7 225,7 Posizione finanziaria netta (cassa) 108,6 108,6 Posizione finanziaria netta (cassa) 108,6 108,6 Benefici dipendenti (13,3) (13,3) Benefici dipendenti (13,3) (13,3) Imposte differite attive nette 2015 att. 4,2 4,2 Imposte differite attive nette 2015 att. 4,2 4,2 Minorities (0,1) (0,1) Minorities (0,1) (0,1) Equity Value 286,2 341,7 Equity Value 292,1 325,1 Numero di azioni nette 78,3 78,3 Numero di azioni nette 78,3 78,3 Valore per azione Cairo 3,65 4,36 Valore per azione Cairo 3,73 4,15
Cairo Value with EV/Sales 2018 Cairo Value with EV/EBITDA 2018
Valore Cairo con multiplo Sales 2018 Publish MMP Valore Cairo con multiplo Ebitda 2018 Publish MMP EV attualizzato con multiplo Sales 2018 202,3 259,6 EV attualizzato con multiplo Ebitda 2018 220,9 272,5 Posizione finanziaria netta (cassa) 108,6 108,6 Posizione finanziaria netta (cassa) 108,6 108,6 Benefici dipendenti (13,3) (13,3) Benefici dipendenti (13,3) (13,3) Imposte differite attive nette 2015 att. 4,2 4,2 Imposte differite attive nette 2015 att. 4,2 4,2 Minorities (0,1) (0,1) Minorities (0,1) (0,1) Equity Value 301,7 359,0 Equity Value 320,3 371,8 Numero di azioni nette 78,3 78,3 Numero di azioni nette 78,3 78,3 Valore per azione Cairo 3,85 4,58 Valore per azione Cairo 4,09 4,75
[Key: Valore…= Cairo value with 201... sales multiple, EV attualizzato…= Discounted EV with 201… Sales Multiple, Posizione = net financial position (cash), benefici = employee benefits, Imposte…= Net discounted 2015 deferred taxes accrued = numero… = number of net shares, valore… = value per Cairo share]
4) Comparison of the two companies’ fundamental values
Based on the results obtained, it was possible to arrive at 4 difference exchange ratio ranges for the value of RCS’ shares, which was determined using the DCF method and within a range from EUR 0.80 to EUR 1.13, with an average value of EUR 0.95:
1) exchange rates from the Publishing EV/Sales 2017 and 2018 multiples, 2) exchange rates from the Publishing EV/EBITDA 2017 and 2018 multiples, 3) exchange rates from the EV/Sales 2017 and 2018 weighted average multiples, 4) exchange rates from the EV/ EBITDA 2017 and 2018 weighted average multiples.
Prof. Roberto TASCA Page 12
UPDATE DOCUMENT RCS MediaGroup S.p.A.
Exchange rates from the Publishing EV/Sales 2017 and 2018 Exchange rates from the Publishing EV/EBITDA 2017 and 2018 multiples multiples
Concambi con Multipli Publishing Sales 2017-2018 Concambi con Multipli Publishing Ebitda 2017-2018 Su Sales ('17 e '18) MIN MEDIO MAX Su EBITDA ('17 e '18) MIN MEDIA MAX Valore per azione Cairo 3,65 3,75 3,85 Valore per azione Cairo 3,73 3,91 4,09 Valore per azione RCS 0,80 0,95 1,13 Valore per azione RCS 0,80 0,95 1,13 Rapporto di cambio 0,22 0,25 0,29 Rapporto di cambio 0,21 0,24 0,28
Exchange rates from the Publishing EV/Sales 2017 and 2018 Exchange rates from the Publishing EV/EBITDA 2017 and 2018 multiples adjusted for the Cash Consideration multiples adjusted for the Cash Consideration
Concambi con Multipli Publishing Sales 2017-2018 Concambi con Multipli Publishing Ebitda 2017-2018 Su Sales ('17 e '18) MIN MEDIO MAX Su EBITDA ('17 e '18) MIN MEDIA MAX Valore per azione Cairo 3,65 3,75 3,85 Valore per azione Cairo 3,73 3,91 4,09 Valore per azione RCS * 0,55 0,70 0,88 Valore per azione RCS * 0,55 0,70 0,88 Rapporto di cambio 0,15 0,19 0,23 Rapporto di cambio 0,15 0,18 0,22 * Valore azione RCS al netto del Corrispettivo in Denaro (euro 0,25) * Valore azione RCS al netto del Corrispettivo in Denaro (euro 0,25)
Exchange rates from the EV/Sales 2017 and 2018 weighted Exchange rates from the EV/ EBITDA 2017 and 2018 weighted average multiples average multiples
Concambi con Multipli Medi Ponderati Sales 2017-2018 Concambi con Multipli Medi Ponderati Ebitda '17-'18 Su Sales ('17 e '18) MIN MEDIO MAX Su EBITDA ('17 e '18) MIN MEDIA MAX Valore per azione Cairo 4,36 4,47 4,58 Valore per azione Cairo 4,15 4,45 4,75 Valore per azione RCS 0,80 0,95 1,13 Valore per azione RCS 0,80 0,95 1,13 Rapporto di cambio 0,18 0,21 0,25 Rapporto di cambio 0,19 0,21 0,24
Exchange rates from the EV/Sales 2017 and 2018 weighted Exchange rates from the EV/ EBITDA 2017 and 2018 weighted average multiples adjusted for the Cash Consideration average multiples adjusted for the Cash Consideration
Concambi con Multipli Medi Ponderati Sales 2017-2018 Concambi con Multipli Medi Ponderati Ebitda '17-'18 Su Sales ('17 e '18) MIN MEDIO MAX Su EBITDA ('17 e '18) MIN MEDIA MAX Valore per azione Cairo 4,36 4,47 4,58 Valore per azione Cairo 4,15 4,45 4,75 Valore per azione RCS * 0,55 0,70 0,88 Valore per azione RCS * 0,55 0,70 0,88 Rapporto di cambio 0,13 0,16 0,19 Rapporto di cambio 0,13 0,16 0,19 * Valore azione RCS al netto del Corrispettivo in Denaro (euro 0,25) * Valore azione RCS al netto del Corrispettivo in Denaro (euro 0,25)
[Key: Concambi… = Exchanges with Average Sales/EBITDA weighted multiples for Publishing, Su sales… = On sales (2017 and 2018), Su EBITDA… = On the EBITDA (2017 and 2018), valore… = Value per Cairo share, Value per RCS share, rapport = Exchange ratio, valore azione… = Value of RCS share at the net of the Cash Consideration (EUR 0.25)
5) Verification of the quantifications obtained
To verify the quality of the estimated fundamental value of Cairo that we obtained, we point to the relationship that exists among:
i. the multiples of the two clusters used in the Cairo valuation; ii. the ones indicated in the Cairo Supplement4;
4 See pg. 66.
Prof. Roberto TASCA Page 13
UPDATE DOCUMENT RCS MediaGroup S.p.A.
iii. the ones implied in the range of fundamental values expressed for RCS shares using the DCF method.
One thereby immediately notices the high degree of correlation between the multiples, which confirms the significance of the estimated values for Cairo.
EV/EBITDA CONFRONTO MULTIPLI 31-dic-16 31-dic-17 31-dic-18 Media Cluster Publisher 7,73x 6,60x 5,87x 6,73x Suppl. Cairo pag. 66 7,00x 6,60x 6,40x 6,67x Cluster Medio Ponderato 8,08x 6,99x 6,28x 7,12x Multipli impliciti DCF RCS 7,70x 6,46x 5,54x 6,57x
[Key: Confronto… = Comparison of Multiples, Dic. = December, Suppl…. = Pg. 66, Cairo Supplement, Cluster… = weighted Average cluster, Multipli… Implied multiples in the DCF for RCS]
Observations on the Third Increase to the Cairo Consideration
The Third Addendum to the Cairo Fairness was requested of the Undersigned Expert following the Notice of 8 July 2016, with which the Bidder increased the exchange ratio proposed to the market by raising it from No. 0.17 to No. 0.18 common shares of Cairo for each common share of RCS and by adding a Cash Consideration of EUR 0.25 per share of RCS brought to the Offer.
We re-determined the valuations made using:
1) the weighted average prices for the two stocks (RCS and Cairo), 2) a sampling of historic PTOs made in Italy in the period between 2010 and 2016, 3) the target prices proposed by the financial analysts, 4) the market multiples applied to the Sales and EBITDA figures (for 2017-2018) presented in the 2017-2018 Cairo Business Plan, and 5) the range of fundamental values for RCS shares estimated using the DCF method.
The application of the methods described in points 1, 2, and 3, which are based on the historic prices of common shares of RCS and Cairo, yielded a fairness range of a 0.10-0.13.
The application of the methods described in points 4 and 5, which are based on the prospective figures drawn from the Business Plans presented by RCS and Cairo to the market, yielded a fairness range of 0.14-0.21.
Prof. Roberto TASCA Page 14
UPDATE DOCUMENT RCS MediaGroup S.p.A.
Summary of results
Terzo Rilancio Cairo
Concambi con Multipli Ebitda '17-'18 Medi Ponderati 0,13 0,19 Valori minimi (0,14) e massimi (0,21) con metodo Concambi con Multipli Sales '17-'18 Medi Ponderati 0,13 0,19 dei multipli
Concambi con Multipli Ebitda '17-'18 Publishing 0,15 0,22
Concambi con Multipli Sales '17-'18 Publishing 0,15 0,23
Consensus Valori minimi 0,10 0,15 (0,10) e massimi (0,13) con metodo 0,14 PMP OPA prezzi storici 0,12
PMP 0,08 0,08
0,00 0,02 0,04 0,06 0,08 0,10 0,12 0,14 0,16 0,18 0,20 0,22 0,24
[Key: Terzo.. = Third Cairo Increase, Concambi… = Exchanges with weighted average EBITDA multiples for 2017 and 2018, Exchanges with weighted average Sales multiples for 2017 and 2018, Exchanges with Publishing EBITDA multiples for 2017 and 2018, Exchanges with Sales EBITDA multiples for 2017 and 2018, PMP… = WAP of PTOs, WAP, Valori minimi… = Minimum (0.10) and maximum (0.13) values using the historic price method, Minimum (0.10) and maximum (0.13) values using the multiples method]
Even though the methods set forth in points 4 and 5, which are based on figures that can be inferred from the two companies’ prospective industrial plans, may represent a greater degree of reliability for the determination of the fairness opinion compared to the methods used in points 1, 2, and 3, which are based on historic figures, in order to maintain consistency in the methods used for the previous results, we think it is appropriate to formulate the concluding fairness opinion on the basis of the simple arithmetic mean of the ranges determined on the basis of all the methods used.
Therefore, in accordance with all the methods applied and the hypotheses set forth during the performance of this engagement, the fairness range, determined as the arithmetic mean of all the determinations made, is between: 0.13 – 0.18.
Prof. Roberto TASCA Page 15
UPDATE DOCUMENT RCS MediaGroup S.p.A.
Summary of the results
Terzo Rilancio Cairo
Concambi con Multipli Ebitda '17-'18 Medi Ponderati 0,13 0,19
Concambi con Multipli Sales '17-'18 Medi Ponderati 0,13 0,19
Concambi con Multipli Ebitda '17-'18 Publishing 0,15 0,22
Concambi con Multipli Sales '17-'18 Publishing 0,15 0,23
Consensus 0,10 0,15
PMP OPA 0,12 0,14
PMP 0,08 0,08
0,00 0,02 0,04 0,06 0,08 0,10 0,12 0,14 0,16 0,18 0,20 0,22 0,24
Riquadro delle medie dei minimi (0,13) e dei massimi (0,18)
[Key = same as previous diagram, except for Riquadro… = Box of the averages of the minimums (0.13) and the maximums [0.18]
This yields an opinion of FAIRNESS on the consideration offered by Cairo in the Third Increase to the Cairo Consideration.
Milan, 11 July 2016
Respectfully submitted,
Prof. Roberto TASCA Page 16