Spanish media giant Prisa and Telecinco, whose main shareholder is Italy’s Mediaset, said Friday they agreed to merge their television operations in Spain in a deal worth over EUR 1 billion.

Under the deal Telecinco, Spain’s top television station by audience, will take control of Prisa’s television channel Cuatro as well as a 22 percent stake in its pay-TV unit Digital+, said the two companies in a statement.

Debt-laden Prisa, the publisher of Spain’s leading newspaper El Pais, will receive around 18.3 percent of Telecinco estimated to be worth of EUR 550 million as well as EUR 500 million in cash.

Telecinco will issue new shares worth EUR 500 million to finance the deal. Mediaset is owned by Italian Prime Minister Silvio Berlusconi.

The two channels have a combined audience share of around 25 percent and a merger will give them stronger bargaining power to negotiate with advertisers at a time when Spain’s media is being hammered by the country’s worst recession for more than five decades.

The economic contraction has led to a significant drop in advertising revenues and next year’s switch to digital terrestrial television will multiply the number of competitors.

The government in February passed a law which eliminated a 5.0 percent limit on cross shareholdings at television broadcasters in a move intended to ease sector mergers.

It also approved a law banning advertising on public television channels from January 2010 in what was seen as another step aimed at helping private broadcasters cope with the tough market conditions.

Advertising on state channels was estimated to be worth about EUR 500 million a year. (Via Expatica)