Market Insight

UTH Russia offers to buy 75% of CTC Media

July 07, 2015  | Subscribers Only


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CTC Media has received an offer from UTH Russia to purchase 75% of its business in Russia and Kazakhstan for $200 million – a low price which values the company at 94% less than at the time of the last major share transaction two years ago. This is the first and the only offer which was received by CTC since the media company announced it would sell the business last March.

CTC Media operates four terrestrial channels including CTC, Domashniy, Perets and CTC Love. UTH operates two terrestrial channels, U and Disney (UTH owns 51% of Disney Channel Russia, the Walt Disney Company owns 49%), and a music pay TV channel called Muz-TV.

If the deal goes ahead, CTC Media will comply with an amendment to the Russian ‘On Mass Media’ law, which will impose a 20% non-Russian ownership cap of Russian television companies beginning on 1 January 2016. Currently Modern Times Group (MTG) owns the largest share of the media company (37.9%) and 36% of shares are traded on NASDAQ. CTC Media is the largest company in Russia to be affected by the ownership cap.

Around 25% of CTC Media shares will remain under the Cyprus-registered company Telcrest which is owned by Yuriy Kovalchuk, a Russian beneficiary, and his Russian partners. Under the amended law, such companies have until 1 January 2017 to transfer their assets to Russian companies.

UTH Russia is offering to pay $200 million for 75% in CTC Media, which implies a valuation of $267 million. To put things in perspective, Kovalchuk and his partners paid $1.1 billion for 25.2% in July 2013 (valuing the company over $4.4 billion).

Our analysis 

It is surprising that CTC Media may be selling three quarters of the shares for as little as $200 million to UTH. However, UTH bosses would be fully aware that there have not been many offers and that CTC Media has not got much time until the 20% foreign ownership cap comes into effect. Kovalchuk could have been a potential buyer if his companies were not added to the EU and the US sanctions lists as a result of Russia’s annexation of Crimea. (Kovalchuk owns Telcrest through a bank called ‘Russia’ which is connected to the Russian government).

CTC Media has set up a committee to negotiate with UTH Russia. The committee has promised a time period to UTH during which no other bids will be accepted so the parties can attempt to agree terms.

MTG’s approval of the deal is not enough, as a majority of minor stakeholders will need to vote for the deal. The long term shareholders are aware that the most likely outcome in the case of share buyback will be a small dividend on top of the share price which has decreased by over 83% in the year to date, according to Bloomberg NASDAQ data. The shareholders will most likely vote for the sale, because the alternative outcome is for CTC Media to close down - which will leave the shareholders even worse off.

There is still a chance that the On Mass Media law will change in favour of the foreign owners, but it’s widely believed that if UTH-CTC deal gets completed then the likelihood of such an amendment will be close to zero.  

Geography
Russia USA
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