Market Insight

CTC Media agrees deal with UTH as Russian sell-offs continue

September 25, 2015  | Subscribers Only


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CTC Media has accepted an offer from UTH Russia to purchase 75% of its business in Russia and Kazakhstan for $200 million.

CTC Media was forced to sell the assets in order to 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 over 70% of the company is foreign-owned. Modern Times Group (MTG) owns the largest share of the media company (37.9%). CTC Media is the largest company in Russia to be affected by the new ownership cap.

MTG has been trying to sell the Russian subsidiary of its Viasat international satellite TV operation, which runs around 30 of its own pay TV channels. Until recently there had been talks between a company which manages the assets of Leonard Blavatnik, the UK-based investor, and the Modern Times Group about purchasing about MTG’s stake in the Russian subsidiary of Viasat. However, no agreement was found and the Swedish media giant carries on the search for a buyer.

In further, related, acquisitions activity, the Walt Disney Company will sell 29% of its 49% stake in Disney Channel Russia – again, to UTH Russia. UTH, which already owns 51% of the channel, will bring its stake to 80%. The American conglomerate, however, will continue its previous revenue share agreement with UTH Russia.

In its turn, Discovery Communications will create distribution for its channel properties via a partnership. Combining forces with a Russian company called National Media Group, Discovery has formed a company called Media Alliance in which it can hold the maximum 20% stake.

Viacom International Media Networks has received interest from Investment Fund Columbas Nova in assisting the distribution of National Geographic, Nat Geo Wild, Fox and Fox Life in Russia.

Our analysis 

After the completion of this lengthy process MTG will be a lot worse off than before the introduction of the regulatory changes in the media markets. The CTC Media deal has not been completed and has a number of stages to go through. UTH Russia will pay $200 million for 75% of CTC Investments which is owned by American CTC Media Inc. before the end of the year. CTC Media Inc. will pay out about $250 million to the shareholders, meaning those shareholders benefit from a significant if the share prices are stable - yesterday the shares cost $217 million. On top of this, in order to restructure CTC Media so it complies with the 20% foreign ownership cap, the minority shareholders will need to vote positively for the restructuring and the Security and Exchange Commission needs to approve the deal. In Russia the anti-monopoly body Federalnaya Antimonopolnaya Sludgjba (Federal Anti-Monopoly Office) will need to make sure that the market remains competitive. It will also look into the fact that Telcrest, which currently owns 25% of CTC Investments, is a Cyprus-registered company with Russian beneficiaries.

Of the other, related, deals, Disney’s is the most interesting and possibly the most complex. The company, for its financial health in Russia, is dependent on continuing a revenue split agreement without holding a corresponding number of shares. UTH Russia will effectively own 80% of the business, yet has promised to split income 51%/49%. This leaves Disney exposed in an uncertain market.

The changes in regulation and the bearish sentiment on the Russian financial markets have created delays, losses and uncertainty. And yet it is very clear that western international media companies see value in staying in Russia. The total pay TV subscriber base has been growing there despite the adverse economic conditions. Plus, there is a silver lining in the form of advancements in tackling video piracy. This week, a new association of legal content sellers and rights holders, the Rossiyskaya Assotsiatsiya Elektronnih Kommunikatsiy (Russian Association of Electronic Communications) was created. Also, many steps have been taken to pass on all of the intellectual property duties, which are currently handled by over 10 different government departments, to one body called Federalnaya Sludgba po Intelektualnoy Sobstvennosti (Russian Federal Service for Intellectual Property). Combined, the promises of further growth and improved copyright protection are keeping international companies invested.

Geography
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