Bullish on Bulgaria

Michael Hedges August 4, 2008 Follow on Twitter

Central and Eastern Europe continue to draw in strategic investors. Two major broadcasters announced acquisitions last week in Bulgaria. More could be brewing... or stewing.

Modern Times Group (MTG) gets the number 2 rated free-to-air television station Nova Televizia (Nova TV) for a mere €620 million ($US 960 million) from Antenna Group. The Financial Times (August 1) reported the purchase price at about 20 times expected 2008 earnings. MTG also gets magazine publisher Agency Eva. MTG already has a financial interest in cable channels under the Diema TV and MMTV brands.

Antenna Group, the major Greek media company, entered Bulgaria in 2000 buying Nova TV for $US 3.7 million. They will walk away with over 200 times the investment. The company purchased 80% of Agency Eva, publisher of popular women’s magazine Eva, in March 2008 for an undisclosed price. Company CEO Theodore Kyriakou said proceeds from the deal would go toward “further investment in Greece and the Balkans.”

Days earlier Central European Media Enterprises (CME) announced a lesser but still significant acquisition of free-to-air channel TV2 and sports cable channel Ring TV from a local owner for about €110 million ($US 172 million).

Two weeks ago (July 17) News Corporation floated a story about the possibility of selling its Central and Eastern European television stations, including top rated bTV in Bulgaria. At that brief moment in time one Bulgarian source speculated that bTV could be bought for $US 500 million, then $US 800 million. After the Nova TV deal was announced, price speculation had gone to $US 1.2 billion.

News Corporation has declined to comment further other than saying investment bank Lehman Brothers is handling the evaluation. Lehman Brothers has had no comment. One day earlier (July 16) Polish TV channel TV Puls, which News Corporation owns 35% and has significant management authority, fired over 100 staff working on news programs. Reasons cited were low ratings and cost control though the company also said it would go forward with two new cable channels.

“Several” companies had approached News Corporation about buying its television stations in Latvia, Bulgaria and Serbia. One of the suspected buyers was Antenna Group, most likely interested in Serbia’s Fox Televizija. Other names surfacing as interested in bTV are Warburg Pincus, Advent International and GMT Communications Partners.

Both CME and MTG are known as lean, mean sales machines. But 2007 TV ad revenue in Bulgaria was only €125 million. The pay-TV market is improving but per capita GDP is the lowest in Eastern Europe. And the inflation rate is rising. In statements announcing their respective deal, both companies touted ad spending growth rate forecasts. Then, too, the watchful eye of the European Commission is on Bulgaria for failure to curb corruption.  

Publicly traded companies – like CME and MTG – rarely have the luxury of a long-term view, six quarters being an eternity. MTG’s share price was punished on the announcement. CME’s was not as it had just turned in stunning Q2 financial results. News Corporation’s stock shot up when traders learned it might sell the Eastern European TV channels.

In addition to its considerable Scandinavian holdings and cable channels in Bulgaria MTG owns television channels in Russia, Hungary, the Czech Republic, Slovenia, Latvia, Estonia and Lithuania. MTG also owns radio networks and stations in Sweden, Norway, Latvia, Estonia and Lithuania.

Bulgaria’s broadcast media scene also includes several big media companies with international footprints. When ProSiebenSat.1 acquired SBS Broadcasting four Bulgarian radio stations were in the package. Antenna Group sold Radio Express to SBS in 2006. Emmis International owns and operates three radio stations in Bulgaria. Dublin-based Communicorp owns one radio station.

Major German publisher WAZ Media Group owns the biggest Bulgarian newspapers.

Venture capital firm Advent International, mentioned as a possible suitor for News Corp’s bTV, has had some exposure to broadcasting in central Europe, owning Hungarian national radio broadcaster Danubius Radio in 2003 and selling it to Accession Mezzanine Capital in February 2008.  Advent is not known to currently hold broadcasting interests. GMT owned Slovenia television channel Kanal A from 1993 until 1998, selling to SBS Broadcasting.

Warburg Pincus is one of the biggest investment banking, private equity firms. They have exposure in every business sector and every region of the world. Like their high-flying brethren, Warburg grows rich on deal flow; buying, financing and selling. Warburg was called upon by Metromedia to assist in a tricky transaction involving radio stations in Russia, later sold to Lagardère.

The big VC and private equity firms keep one thing in mind: exit. If one or more of these financial giants are interested in News Corp’s bTV or any other asset, rest assured they already know to whom they can sell in three to five years…and at what profit. In the same vein, they know very well the added value of facilitating transactions. 

By all appearances, MTG paid a premium for Nova TV. CEO Hans-Holger Albrechthas never been squeamish about risky investments. Neither have CME CEO Mike Garin nor News Corps Rupert and James Murdoch.  In the celebratory statement Albrecht said he’s committed “to expand our operations into high growth emerging markets and to extend our successful multi-channel multi-country business model.”

Big media companies will always look for expansion opportunities in growth regions even if that growth horizon is but a few years on. Their impact on the Bulgarian media market has largely been positive, reluctantly admitted by even the most hard-core anti-corporate critics, investment in technology, training and locally originated content substantial and increasing.  But the risk to the Eastern European media sector is organic. The available pool of non-risk averse broadcasters with scale is far too limited.