By Deborah Ball 

MILAN-- Mediaset SpA said Tuesday that French media group Vivendi SA no longer wishes to acquire all of its pay TV unit, reversing a decision agreed to in April.

In a statement, Mediaset, which is controlled by the family of former Italian premier Silvio Berlusconi, said that Vivendi sent Mediaset a letter Monday stating that it was no longer interested in taking 100% of Mediaset Premium. Instead, it is proposing to acquire only 20% of the unit, plus 15% of Mediaset itself in three years via a convertible bond.

Mediaset said that the Vivendi letter "comes absolutely out of the blue" and is in "clear contradiction" with the April agreement.

In a statement, Vivendi said that Chief Executive Arnaud de Puyfontaine sent a letter to Mediaset's management on June 21 informing the Italian company of "significant differences in the analysis" of Mediaset Premium's results. Vivendi said it "confirms its desire to build a major strategic alliance with Mediaset and Mediaset Premium."

A Vivendi spokesman said that the disagreement between the French and Italian companies centered on "projections and projected results," but expressed confidence that the two can find an agreement.

The news is a setback to Mediaset, which has struggled with its loss-making pay TV unit for years. In trading in Milan, Mediaset shares were down 12%.

The two had agreed that Vivendi would take control of Mediaset's 89% stake in Mediaset Premium via a swap of 3.5% stakes in each of the companies. Vivendi would also buy the remaining 11% stake in the pay-TV unit from Spain's Telefónica.

While some analysts have valued Mediaset Premium at about EUR900 million ($990 million), the pay-TV division has lost money for years, struggling to compete with Sky Italia.

"It seems that they're doing the due diligence and they're getting cold feet about a few different things," said Kepler analyst Conor O'Shea. "It looked like a crazy deal. If you want to go to Italy, that's fine, but why take 100% of the losses of Mediaset Premium?"

The Vivendi-Mediaset deal is an important step in Vivendi's ambitions to build a pan-European group strong enough to challenge Netflix and Sky. The agreement also included a deal to work together on a new streaming service for European audiences.

Mediaset's board will take an official position on the Vivendi letter when it meets Thursday to approve first-half results.

Write to Deborah Ball at deborah.ball@wsj.com

 

(END) Dow Jones Newswires

July 26, 2016 05:02 ET (09:02 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.