Monday, media and entertainment company Time Warner Inc. (TWX) said it would acquire a 31% stake in broadcasting company Central European Media Enterprises Ltd., or CME, (CETV) by investing US$241.5 million. The announcement sent CME shares up by over 31%. Meanwhile, CME said in a statement that it expects revenues for the first quarter to decline sharply from the year-ago period, and noted that the macroeconomic environment has deteriorated and television advertising spending is now expected to decline in all its markets in 2009.
Time Warner will receive 19 million newly issued CME common shares, consisting of 14.5 million shares of Class A Common Stock at a price of US$12.00 per share and 4.5 million shares of Class B Common Stock at a price of US$15.00 per share.
In connection with the transaction, Time Warner agrees to allow CME founder and non-executive chairman Ronald Lauder to vote Time Warner's shares of CME for at least four years, subject to certain exceptions. Lauder has also pledged to support Time Warner's appointment of two of its designees to CME's board of directors. Additionally, Lauder has committed to voting the shares he controls in favor of the transaction.
The closing of the investment is subject to a vote of CME's shareholders and certain regulatory approvals. The deal is expected to close before the end of the second quarter of 2009.
In addition, Warner Bros. and CME have separately agreed to form a partnership to launch and operate new thematic television channels in current CME territories, some of which will be Warner Bros. branded. These channels will feature international films and television series.
CME operates television channels in Bulgaria, Croatia, Czech Republic, Slovak Republic, Slovenia, Ukraine and Romania.
Citigroup is serving as financial advisor to Time Warner and J.P. Morgan is acting as financial advisor to CME.
In a separate statement, CME said that it expects to report revenues of US$135 million to US$145 million for the quarter ending March 31, 2009, compared to revenues of US$223 million reported for the year-ago period.
First-quarter total segment EBITDA is expected in the range of US$18 million-US$22 million, in comparison with US$75 million reported last year. As reported earlier, CME said continuing decline in TV advertising may result in further impairment of some of its assets. The company intends to conduct an impairment review during its first quarter close process.
Adrian Sarbu, President and Chief Operating Officer of CME, said, In view of the weak trading conditions in our markets in the first quarter we have decided to update investors and analysts on our expected results. Advertisers have been cautious with their expenditure in response to rapidly changing conditions and the strength of the US dollar. As a result the first quarter of 2009 has been extremely challenging.
Recently, information and media firm Nielsen Co. said that U.S. ad spending in 2008 declined 2.6% from the prior year. The expenditure on ads was $136.8 billion, down by nearly $3.7 billion over the previous year.
Both Time Warner and CME reported a loss in their just concluded quarter. Time Warner last month reported a hefty loss for its fourth quarter compared to last year's profit, hurt by huge asset impairments in the AOL, Cable and Publishing segments. The company's fourth-quarter net loss was $16.03 billion or $4.47 per share, compared to a profit of $1.03 billion or $0.28 per share in the previous year quarter. Revenues declined 3% to $12.31 billion from $12.64 billion in the previous year.
CME also reported a fourth-quarter loss in February, hurt by impairment charge relating to the company's Ukraine and Bulgarian operations. For the fourth quarter, the company posted a net loss of $323.29 million or $7.64 per share, compared to a net income of $72.99 million or $1.71 per share reported last year. Quarterly net revenues dropped 3% to $291.50 million from $300.55 million in the previous year.
TWX is currently trading at $8.22, up $0.36 or 4.58% from the previous close, on 2.34 million shares.
CETV shares have surged 31.30% and are currently trading at $13.13 on 531,366 shares.
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