Strictly confidential Investment opportunity June 2012 Disclaimer This document (the “Document”) has been drawn up by Mediobanca S.p.A. (“Mediobanca”) and Citi Global Markets, Ltd. (“Citi”) on the basis of information publicly available and provided by Telecom Italia S.p.A. (“Telecom Italia”) and Telecom Italia Media S.p.A.. Mediobanca and Citi assumed and relied, without independent verification, upon the accuracy and completeness of such information. Neither Mediobanca nor Citi nor any of their directors, executives or employees assume responsibility for, and make any representation or warranty (express or implied) with respect to, the accuracy or completeness of the information contained herein, and expressly disclaim, and it is recognized that they have no liability for, any statements, express or implied, contained in, or any errors in or omissions from, this Document. 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Any request, communication or question regarding the Document should be directed to: M E D I O B A N C A S.p.A. Citi Global Markets, Ltd. Stefano Argenton Alessandra Pasini Piazzetta Enrico Cuccia, 1 Via Mercanti, 12 20121 Milan, Italy 20121 Milan, Italy Phone: +39 02 8829 235 Phone: +39 02 8906 8224 Fax: +39 02 8829 943 Fax: +39 02 3604 9262 E-mail: [email protected] E-mail: [email protected] 2 I Situation overview and scope of the transaction Telecom Italia Media S.p.A. (“TI Media”) is the company which heads up the Telecom Italia group’s activities in the media sector. Telecom Italia owns 77.4% of its share capital1. TI Media shares are listed on the Italian stock market and no other shareholder owns a stake of more than 2% of its share capital. The current TI Media group structure is as follows: 23 Telec o m Ita lia S.p.A. 77.4%2 Telec o m Ita lia Corporate Media S.p.A. services 51%3 100% Telec o m Ita lia Network MTV Italia S.r.l. Media Broadcasting S.r.l. Operator 100% MTV Pubblicità S.r.l. Based on average stock market prices in May 2012, TI Media had an average market capitalization of €230m. 1 The share capital of TI Media is equal to €212.2m, made up of 1,446,317,896 ordinary shares and 5,496,951 non-voting saving shares with no face value. 2 Stake amounting to 77.7% of the voting rights, 2.2% of which is owned by the wholly-owned subsidiary Telecom Italia Finance S.A.. 3 The other 49% is held by US group Viacom. The company’s articles of association includes a pre-emption right for the shareholders in the event of transfer of shares. 3 The Board of Directors of TI Media has recently approved a corporate reorganization according to which its TV business will be transferred to a newly incorporated, fully-owned subsidiary. The resulting group structure, post the reorganisation will be the following: 4 Telec o m Ita lia S.p.A. 77.4% Telec o m Ita lia Corporate Media S.p.A. services4 100% 100% Telec o m Ita lia La7 S.r.l. Media Broadcasting S.r.l. 51% MTV Italia S.r.l. Network Operator 100% MTV Pubblicità S.r.l. TV Telecom Italia is considering the disposal of its 77.4% stake in TI Media in order to focus on its core telecom business. Telecom Italia, together with TI Media, is also willing to contemplate the divestiture of TI Media’s TV business and Network Operator business separately in order to take into consideration the different asset characteristics. 4 Following the corporate reorganization, the corporate services related to the TV business will be transferred to La7 S.r.l.. The corporate services related to the Network Operator business will be transferred to Telecom Italia Media Broadcasting S.r.l. if the Network Operator business is sold separately. 4 II Investment highlights - Interesting market position for an asset with good prospects: • TI Media group is the third player in the Italian free-to-air television market, with a loyal viewer base due to its programming schedule focused on information and in-depth analysis; • TI Media is a unique opportunity to enter the Italian free-to-air TV market, with upsides relating to the growth of its audience share and to the expected changes in the competitive landscape. - Unique opportunity to invest in an attractive market, with growth potential: • Italian advertising expenditure per capita and as a percentage of GDP is considerably lower than in the US and other western European countries, and with meaningful scope for growth5; • total advertising expenditure is expected to bottom out in 2012 and grow at an annual compounded growth rate of 4.1%6 in the 2013-2015 period; • despite the envisaged growth of new media, traditional free-to-air TV is expected to remain a reference point over the next few years, in terms of audience share and advertising revenues, with an increasing focus on themed channels. TI Media group is expected to benefit from its competences in the development of new content and channels tailored to segmented audience. - TI Media’s TV business is an attractive asset with good visibility and a strong momentum in the market: • bucking the declining trend of the audience share of its main competitors, in the last three years La7 has experienced outstanding and constant growth in advertising revenues due mainly to the ongoing increase in terms of audience share; • La7 and MTV One channels have an appealing channel numbering (i.e. number 7 & 8 on the remote control). - TI Media’s TV business has strong revenue growth potential as the recent audience trends continue: • certain broadcasters in Italy have an advertising share far higher than their audience share; La7 would benefit from a more balanced distribution of TV advertising among the privately-held broadcasters; • taking the recent positive results in terms of audience share into consideration, La7 could benefit from the revision of certain terms of the existing advertising agent agreement. 5 Source: Zenith Optimedia. 6 Source: Screen Digest. 5 - TI Media’s Network Operator is a valuable asset: • full occupancy of its 3 multiplexes and good visibility of its medium-term revenues; • cash flow generation will benefit from the completion of capital expenditures linked to the digitalization process of the transmission network (the full analogue switch-off is expected by the end of June 2012). - TI Media’s Network Operator has a strong upside potential: • in the event of a positive outcome of a legal proceeding which is currently pending, the Network Operator could be awarded the frequencies of a fourth national multiplex. - Telecom Italia has a flexible approach: • Telecom Italia is keen to dispose of its 77.4% stake in TI Media. However, Telecom Italia, together with TI Media, may also contemplate the divestiture of TI Media’s TV business and Network Operator business separately in order to take into consideration the different asset characteristics. 6 III Italian media industry overview Advertising Market in Italy Italy is an attractive market with currently relatively low advertising expenditures and with prospects for growth. With €7.7bn total advertising expenditure in 2011, Italy has an advertising expenditure per capita (€100.3) and as a percentage of GDP in Italy (0.4%) considerably lower than in the United States and the other western European countries. Chart 1. - Advertising expenditure per capita Chart 2. - Advertising expenditure as a % of by country, 2011 in € GDP by country, 2011 1.00% 345.7 0.77% 0.70% 214.5 211.3 0.49% 0.48% 147.3 0.40% 114.5 100.3 USA Germany UK France Spain Italy USA UK Germany Spain France Italy Source: Zenith Optimedia The advertising expenditure in Italy is expected to bottom out in 2012, and to grow at an annual compounded growth rate of 4.1% in the 2013-2015 period. The level of expected advertising expenditure in Italy in 2015 is €8.5bn, in line with the pre-crisis levels.