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Through a recently inked agreement, Viacom Inc. (VIAB - Analyst Report) will gain full control over Telecom Italia Media owned MTV Italia -- a division of Telecom Italia S.p.A. (TI - Snapshot Report). The company will buy a 51% stake in the music channel for a total consideration of €10 million ($12.825 million).

The deal is expected to close by the end of Sep 2013, subject to regulatory approval. In addition, Viacom has not only renewed its multi-year broadcasting agreement with the media company but was also waived off from Telecom Italia Media’s €9.7 million ($12.44 million) loans to MTV Italia.

Despite telecasting original hits like Very Victoria, Italo-Francese, Avere Ventanni and Hitlist Italia along with the Italian version of Total Request Live, LoveLine and Brand New, MTV Italia’s revenues dropped 25% to $70.5 million in 2012 as compared to $94 million in 2011. The continuous fall in the advertisement business coupled with a highly volatile European economy have resulted in such a drop in MTV’s business.

A few days back, Telecom Italia Media also divested its loss making network, La7 TV. Hence, we believe that selling its stake to Viacom is part of its strategy to divest the unprofitable assets. This will not only bolster profitability but will also help the company manage its debt position.

Following the acquisition, Viacom will become a dominant force in the Italian media industry by having complete control over seven popular networks (MTV channels, Nickelodeon, Nick Jr. and Comedy Central) in the country.

Moreover, the company is strengthening its international core channels like MTV and Nickelodeon by investing heavily on original series and launching Nick app for Apple Inc.’s (AAPL - Analyst Report) iPhone users and Google Inc.’s Android users. Such a move will drive ad revenue; consequently will also help the fans to get closely associated with the brand.

Currently, Viacom has a Zacks Rank #2 (Buy).

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