Market Insight

Time Warner increases stake in central and eastern Europe

July 03, 2012

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit

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Time Warner has increased its stake in CME to 49.9 per cent after exercising a put option to acquire additional shares in the central and eastern European broadcaster. The media giant's investment in CME dates back to March 2009, when it bought a 31 per cent stake for $245.1m.

Yesterday's development follows an agreement earlier in the year under which Time Warner undertook to provide CME with a loan facility of up to $300m, which could only be used to repay debt notes issued by CME which expire in 2013, 2014 and 2016. In June, CME issued new class A shares to Time Warner and one of its founder shareholders, Ronald Lauder, raising $89m in cash which will pay off next year's tranche of debt. Time Warner yesterday exercised an option to increase its stake to the maximum currently allowed.

CME, which operates mainly free-to-air channels throughout central and eastern Europe, has suffered from the after effects of the economic crisis, with its key markets in recession. CME reported a three per cent decrease in revenues in the first quarter of 2012 compared to the same period of 2011, with operating losses climbing 34 per cent to $10m. Results were also hit by the weak exchange rate of local currencies against the US dollar.

The backing of one of the world's major media companies is crucial for CME, at a bad time to be saddled with debt while operating in fragile economies. The injection of cash has eased fears that CME would be short of cash to pay the $130m debts maturing next year. How strongly positioned CME is to meet its debt obligations in 2014 and 2016 will depend on how rapidly markets like Bulgaria and Romania rally over the coming year.

CME's most important markets, the Czech Republic and Romania, also reported the worst year-on-year revenue declines (-10 per cent and -9 per cent respectively) in Q1. While CME is market leader in Bulgaria, the TV market has been flat, and CME's revenues fell two per cent year-on-year.

Time Warner is already heavily committed in the region, having rolled out the HBO pay TV brand in most markets. The company has bought out its studio partners in the regional venture, Walt Disney and Sony, spending $136m in 2010. While it spent a lot more on increasing its stakes in HBO Asia and Latin America, it still amounts to significant exposure in a developing and volatile region when combined with the CME investment. The 14.5m class A shares the company acquired in March 2009 were valued at $12 each, while the value of class A shares acquired this year had dipped to only $7.51.

So far Time Warner's participation in CME appears to have been largely strategic. A plan to collaborate on launching new pay channel brands in the region, floated at the time of the US company's initial investment, has yet to bear fruit. A standstill agreement preventing Time Warner from owning more than 50 per cent of the company expires next year, will be a significant moment when the US company will have the opportunity to take control of a multi-regional enterprise with interests spanning free-to-air broadcasting, pay TV, on-line and production.


CME Time Warner
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