UPDATE 1-Germany's ProSieben rejects critical report by short-seller Viceroy

* Short-seller Viceroy questions ‘media-for-equity’ model

* Says shares should be valued at 75 pct discount

* ProSieben says allegations “unfounded and distorting”

* Shares trade 5 pct lower (Updates with Viceroy, ProSieben quotes, short seller interest)

By Alasdair Pal and Douglas Busvine

LONDON/FRANKFURT, March 6 (Reuters) - German broadcaster ProSiebenSat 1 Media rejected a critical report on Tuesday by short-seller Viceroy Research, saying the allegations of questionable accounting contained in it were “unfounded and distorting reality”.

ProSieben’s shares fell as much as 9 percent after the release of the report, which coincided with news the company was dropping out of Germany’s DAX Index of blue-chip stocks.

Viceroy, which has targeted companies including South African retailer Steinhoff , alleged in its 37-page report that ProSieben had overpaid for acquisitions and was inflating revenues from non-cash transactions.

In particular, it took aim at ProSieben’s media-for-equity model, in which it offers free advertising airtime on its channels in exchange for stakes in companies the broadcaster is investing in.

“ProSieben has subsidized a fabricated digital ‘growth story’ using cash flows from its TV advertising business and idle TV advertising inventory,” the report said.

“As its core business declines, ProSieben can no longer counterbalance its underperforming digital segments - the earnings structure is on the brink of collapse.”

Viceroy put a valuation of 7.51 euros on ProSieben’s shares, a 75 percent discount to Monday’s closing price.

In a statement, the Munich-based broadcaster dismissed Viceroy’s allegations out of hand and said it would respond in more detail in due course

“The allegations of short-seller Viceroy contained in their report are unfounded and distorting reality,” ProSieben said, reiterating its 2017 results and outlook published on Feb. 22.

Viceroy’s report into Steinhoff was followed by an admission of “accounting irregularities” that triggered an 85-percent slide in its share price.

The South African government has, however, called for an investigation into Viceroy after a separate report on Capitec sparked a sell-off in the bank’s stock.


ProSieben has for months been in the sights of short sellers - speculators who position themselves to profit from share-price falls - as the company was forced to issue a series of outlook downgrades due to weak TV ad revenues.

Despite former CEO Thomas Ebeling’s drive to diversify into business lines such as e-commerce, weak ad revenues eventually proved to be his undoing and he stepped down as CEO last month after nine years in charge.

He was replaced by Max Conze, former CEO at British vacuum cleaner maker Dyson.

In December, Swedish hedge fund Bodenholm Capital disclosed a short position in ProSieben, saying the company was losing market share, as well as criticising the number of one-off costs the business reported.

Other funds that have shorted Prosieben’s shares include AQR Capital Management and Old Mutual Global Investors, according to German regulatory filings.

Viceroy founder Fraser Perring told Reuters he had a fundamentally bearish take on the media sector, as young viewers flee and digital platforms attract advertisers. His attitude towards ProSieben’s media-for-equity model was that “it smacks of desperation”.

“They are recognising value of equity significantly higher than what it is worth. If they were a private equity firm, what is their strategy, what are their synergies?” he told Reuters.

More broadly, broadcast media faces an onslaught from platform giants like Amazon and Netflix with their video-on-demand offering of original TV content and Hollywood hits attracting millions of viewers.

Netflix, whose shares have risen 64 percent so far this year, has added more than the equivalent of ProSieben’s entire equity market value in the last two trading days alone.

ProSieben’s shares were down 5.2 percent at 28.47 euros as of 1330 GMT, valuing the company at about $8 billion.