Monochrome Telecom Exits Colorful Broadcast Group

Michael Hedges October 29, 2019 Follow on Twitter

As the Soviet bloc crumbled in Eastern Europe great opportunity opened. Western investors, many with broadcasting and publishing experience, seized the chance as old state structures vanished. They brought money and talent. Success was at hand. Things changed. In the last decade or so, many of these investors walked away. Some ran. Most, now, are gone. The tales are illuminating.

Announced early in the day - or late yesterday, depending on your timezone - was the not quite news that WarnerMedia, subsidiary of big telecom A&T, is to exit its controlling stake in Central European Media Enterprises (CME), reported Reuters (October 27). Czech-based private equity firm PPF Group, principally controlled by insurance and, more recently, telecom investor Petr Kellner, will acquire CME assets in five countries for US$1.1 billion and assume the US$575 million debt. Mr. Kellner has been top of the potential buyer list since parent company WarnerMedia announced that ominous strategic review earlier this year.

"The acquisition of CME with its media assets in five European countries will complement and strengthen our telecommunications operations in Central and Eastern Europe,” said Mr. Kellner in a statement, quoted by Bulgarian news portal Vesti.bg (October 28). “Our goal is to harness the natural synergies between content creation and distribution to further develop the group's telecommunications and media business. CME is a sound and well-managed organization and we do not intend to make significant changes.“

The CME assets include bTV and associated channels in Bulgaria, TV Nova and associated channels in the Czech Republic, PRO TV with associated channels in Romania, TV Markiza in Slovakia, and Pop TV and Kanal A in Slovenia. Most of the channels have grown to market leadership. CME acquired bTV and other Bulgarian channels in 2010 from News Corporation, which had operated the channel for ten years. The Czech operations - TV Nova et.al. - were contentious in their early years; the original owner losing the broadcast license in favor of CME, court battles settled for millions and even the aforementioned Mr. Kellner’s PPF Group owning it briefly before exiting to CME in 2005, which rewarded PPF Group with a minority share position.

Romania’s Pro TV was acquired by CME in 2007 from multi-media company MediaPro, owned by Adrian Sarbu. He was rewarded two years later with appointment as CME’s chief executive. As influence was felt from Time Warner’s increasing stakeholding in CME, Mr. Sarbu exited in 2013, reconstituted MediaPro as a publisher and in 2015 was arrested for money laundering. Last week, he parted with more MediaPro titles with rumors he intends to re-enter the TV business, reported Romania Insider (October 22).

CME first acquired a minority stakeholding in Slovkia’s TV Markiza in 2000, from founder and former economy minister Pavol Rusko, then took full control in 2005. Mr. Rusko and Marian Kocner, an associate, were charged with forging promissory notes from TV Markiza. Mr. Kocner was recently indicted for ordering the murder of Slovak investigative reporter Jan Kuciak and his fiancée.

Two years ago a transaction to exit Pop TV and Kanal A in Slovenia to telecom Slovenia Broadband, subsidiary of United Group United Group, was blocked by the country’s competition regulator. CME refused the regulator’s demand that a minority partner be named. It was part of a joint bid that included CME’s Croatian Nova TV asset. The Croatian transaction was approved and closed successfully.

Earlier CME exited Ukraine broadcaster 1+1, a joint venture with investor Ihor Kolomoyskyi. 1+1 TV attracted considerable attention in recent months as the distributor of popular comedy-drama “Servant of the People,” which starred Volodymyr Zelensky, current Ukraine president.

Share buy-backs for the publicly-traded stake not controlled by WarnerMedia, about 25% of the total, will begin immediately. Closing is expected in the second quarter next year as the current shareholder agreement binds WarnerMedia to CME until April 2020. There are, of course, the usual required competition authority approvals. Most of that will come directly from the European Commission as this is a multi-national transaction.

This exit less to do with the value of CMEs business, quite robust, than the broader financial status of parent AT&T. Big US holding companies, bracing under various uncertainties, are cutting as much debt as possible and grasping for cash. AT&T is sitting on debt of US$160 billion, more than half from the time Warner acquisition. Rowdy activist shareholders are clamoring for more divestitures. Interestingly, AT&T/WarnerMedia will not exit pay-TV HBO franchises in the five countries.

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• Hot Topics - Mergers and Acquisitions

• Hot Topics - Private Equity

• Hot Topics - Central European Media Enterprises (CME)