Market Insight

Dogan Media raises stakes in battle for control of Digiturk

September 03, 2013

Constantinos Papavassilopoulos Constantinos Papavassilopoulos Principal Research Analyst, Service Providers & Platforms

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The Dogan Media Group (DMG), the largest media conglomerate in Turkey, has made an offer for a majority stake in the Digiturk satellite pay TV operator business. Dogan Media Group is offering $742 million (€563 million) for the 53 percent of the shares formerly controlled by Cukurova Group. The other 47 percent is in the hands of Providence Equity Fund.

Twelve companies owned by Cukurova Group were seized in May this year by the Turkish Savings Deposit Insurance Fund, a government agency. The Fund stated that the reason for the seizure of assets was Cukurova's inability to serve its debt obligations and that the Fund is in talks with Providence Equity Fund in order to streamline the selling of some or all of the seized assets.

The Fund sold two Cukurova assets, TV channels Show TV and SkyTurk360, in June. Initially Dogan Media Group denied that it was interested in buying Digiturk but after a Turk Telekom offer in July, reports in the Turkish Press indicated that Dogan Media Group had changed its mind.

The Dogan Media Group has made the highest offer for Cukorova's stake in Digiturk so far, according to press reports. DMG's offer of $742 million is 40 per cent higher than Turk Telekom's July offer of $530 million. It is currently not known whether Turk Telekom plans to raise its first offer, or whether any other possibly interested parties - Vivendi, Dogus Group, 21st Century Fox, Liberty Global - are considering a higher bid. However, for many observers the possibility of Digiturk ending up in DMG's hands seems remote. One of the reasons is that such an acquisition will not go down very well with Turkish Competition Authority as it undoubtedly creates an entity with significant market power. Aydin Dogan, who through his holding company Dogan Yayin Holding controls 77 percent of DMG, is the most powerful media owner in Turkey: his companies control 40 per cent of the Turkish national newspaper market and his more than 20 television channels attract more than 25 per cent of the daily TV viewing. Furthermore, DMG is the owner of D-Smart, the second satellite pay TV platform in the country with more than 900,000 paying customers.

Another reason weighing against DMG's chances are the extremely strained relations between Aydin Dogan and Turkey's prime minister Tayyip Erdogan. Dogan Media have been in the past very critical of Erdogan's policies and the Turkish government has retaliated in 2009 levying two tax fines against DMG for a sum of $3.8 billion, a total amount which was higher than the market value of the company. The media in the country, and specifically television, are highly polarised and many experts believe that close ties with the ruling party are a necessary prerequisite for media companies that want to expand their business entities. The Savings Deposit Insurance Fund, which seized Cukurova assets and is overseeing the acquisitions, is a state-owned body and its chairman has been appointed by the prime minister himself.

Show TV and Sky360 were sold to businesses with close ties to the ruling party: Show TV to Ciner Group (owner of TV News channel HaberTurk) and SkyTurk360 to Kolin, Lemak and Cengiz (not previously involved in the media business but have been awarded the contract for the construction of Istanbul's third airport).

The Digiturk satellite pay TV platform is a formidable asset. According to IHS Electronics & Media data Digiturk had 3,257,000 subscribers at the end of 2012 and revenues in the range of 1.19b Turkish Liras (equivalent to €664 millon). It controlled 54 percent of the total pay TV market while its biggest rival, DMG's D-Smart satellite platform, ended up with just half of Dogan's market share (27 percent). What is more enticing for the possible buyer is the potential of the Turkish pay TV market: IHS E&M is forecasting that the pay TV households in the country will rise from 5.5 million in 2012 to seven million in 2017, experiencing a 25 percent growth while the revenues for the same five-year period will rise from €778 million in 2012 to €1.4 billion in 2017, an increase of 80 percent.

While there is a lot of discussion in Turkey in reference to the reasons that forced Cukurova in such a perilous situation and render the company unable to serve its debt obligations, many pointed to the prolonged litigation duel with the Russian company Alfa Group for the control of the major mobile communications operator in Turkey, Turkcell, as the number one reason. A recent ruling by the UK Privy Council dictates that Cukurova should pay Alfa Group €1.21 billion in order for the former to reacquire Turkcell. Some other experts point to the high cost that Digiturk paid in order to acquire the TV rights for the Turkish Super Lig as a contributing factor to the company's debt burden. In January 2010 Cukurova Group decided to pay a sum of €1.041 billion to renew the broadcasting rights of the league for the period 2010-14, while in 2012 it agreed with the league directors for a one-year extension of the contract to 2014/2015 for a one year lump sum of €436 million.

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