US media group Time Warner is paying $241.5 million for a 31% stake in Central European Media Enterprises, giving CME cash to navigate an economic slowdown in its markets.
CME reaches an audience of 97 million people in Bulgaria, Croatia, Czech Republic, Romania, Slovenia, Slovakia and Ukraine, having expanded quickly in recent years in the once-booming region now being battered by the global downturn.
Separately, CME and Time Warner’s Warner Bros unit will form a partnership to launch new stations in those seven central and eastern European markets, featuring international films and television series, including titles from Warner Bros’s library.
Monday’s news lifted CME shares 40% in Prague to trade at CZK 260 by 9:40 a.m. EDT. On Nasdaq, where CME is also traded, its shares climbed 28% to $12.75. Time Warner shares rose 2% to $8.02. The deal is expected to close by the end of the Q2.
“CME is ideally positioned over the long term as central and eastern Europe returns to significant growth and the media sector in these countries continues to evolve,” Time Warner chairman and CEO Jeff Bewkes said in a statement.
Time Warner, which is set to receive up to $9.25 billion from the spin-off of its cable unit, has said it would consider international acquisitions.
Under the deal, Time Warner will receive 19 million newly issued CME common shares, consisting of 14.5 million shares of class A stock at $12 apeice and 4.5 million shares of class B stock at $15.
Time Warner also agreed to allow CME founder and non-executive chairman Ronald S. Lauder to vote Time Warner’s shares for at least four years, subject to certain exceptions. Time Warner will get two seats on CME’s board.
CME posted a weaker than expected finish to 2008 last month and said the next two years would be difficult, with revenue from advertising likely to be flat or in single-digit decline. CME forecast Q1 revenues of $135-$145 million, down from $223 million in the first three months of 2008.
“Advertisers have been cautious with their expenditure in response to rapidly changing conditions and the strength of the dollar. As a result the Q1 of 2009 has been extremely challenging,” said Adrian Sarbu, chief operating officer of CME. CME books revenue in local currencies.
Analysts said the pairing with the global media giant would give CME a strong partner going ahead, along with strong cash proceeds from the share sale.
“It is good for both parties,” said Patrick Vyroubal, an analysts with broker Atlantik FT in Prague. He estimated the share dilution could amount to $2.50 per share. (Reuters)