CME dumps TV assets into private equity hands, is Deutsche watching?

Central European Media Enterprises (CME) is shipping off its broadcast assets in Croatia and Slovenia to Slovenia Broadband, a subsidiary of telco and media company United Group, for €230 million ($262.5 million) – a major deal in two tiny but emerging markets.

The assets, Nova TV in Croatia and Pop TV in Slovenia, are essentially switching hands from one US owner to another, as Slovenia Broadband’s parent company United Group is in turn owned by US investment firms KKR and EBRD, while CME is 75% owned by Time Warner.

That said, under the more financially scrupulous ownership of two private equity firms, a potential outcome is that Nova TV and Pop TV will be dressed up and sold to a major media group or operator targeting Central and Eastern European markets as key growth areas, and looking to bulk up on TV assets, one like Deutsche Telekom.

Deutsche Telekom could use Nova TV to the advantage of its Croatian operation Hrvatski Telekom, where it has 408,000 pay TV homes, 2.2 million mobile subscribers, 763,000 broadband connections, and 1 million fixed lines. The channels would make valuable additions to Deutsche Telekom’s TV Everywhere service Entertain TV, which is available in multiple languages across Europe.

The German giant isn’t yet present in Slovenia, however, having never followed through on rumors that it was poised to acquire Telekom Slovenije. DT’s footprint extends to nearby Slovakia, Hungary, Romania, Macedonia and Greece. Meanwhile, fierce European rival Liberty Global has not yet barged into either Croatia or Slovenia, but its UPC operations are not far off, with presence in Slovakia, Romania and Hungary.

A deal works strategically both ways, as the sale will be used to repay CME’s $288 million debt which is due next year, CME said in a statement, to save some $30 million a year in interest payments.

Nova TV and Pop TV operate some of the most popular TV channels in the two countries, which could be set for some radical changes, although no future plans for the two regions have been released yet, with the exception of a statement from United Group saying it would continue to invest in the channels to further develop local production capacities and expand its reach beyond local markets.

CME Co-CEO Christoph Mainusch has echoed this show of faith, saying, “United Group shares our outlook for local content on television and we believe it will be excellent stewards of these important businesses in the region going forward.”

While Deutsche Telekom has been present in Croatia since 2010 through HT Group (Hrvatski Telekom), one disadvantageous aspect to look out for in the Slovenian market is that it has to cope with the complete absence of fixed line infrastructure in some parts of the country, partly because some of it has been torn up by looters. When Slovakia was part of Yugoslavia, investment was low, and as a result cellular networks yielded a great return on investment in a post-war world.

The deal, expected to receive approval by end year, comes at quite a premium, given that the combined operating profit of Nova TV and Pop TV was just $13.8 million last year.

CME operates in six Central and Eastern European markets with a population of approximately 50 million people. CME currently broadcasts 36 television channels in Bulgaria (bTV, bTV Cinema, bTV Comedy, bTV Action, bTV Lady, and, Croatia (Nova TV, Doma, Nova World and MiniTV), the Czech Republic (Nova, Nova 2, Nova Cinema, Nova Sport 1, Nova Sport 2, Nova International, Nova Action and Nova Gold), Romania (Pro TV, Pro TV International, Acasa, Acasa Gold, Pro Cinema,, MTV Romania, Pro TV Chisinau and Acasa in ), Slovakia (TV Markíza, Markíza International, Doma and Dajto), and Slovenia (Pop TV, Kanal A, Brio, Oto and Kino).

Michael Del Nin, CME Co-CEO, added, “This represents a transformational moment in the history of CME. We have always had a great set of assets, and this transaction underscores the enduring attractiveness of broadcasters in the region. It also moves us significantly closer to our long-held goal of establishing a more appropriate leverage profile for our operations. Once closed, the cash proceeds from this sale will greatly accelerate our plans for debt reduction, lowering our net leverage ratio by about one turn, cutting our current average borrowing rate by more than a third, and helping us to save over in annual interest costs.”