CTC Media, Russia’s leading independent media company, has announced developments in connection with its response to the amendment to the Russian law ‘On Mass Media’, which will impose further restrictions on non-Russian ownership of Russian television companies beginning January 1st 2016.
The Company has received a formal, non-binding offer from UTH Russia, a privately held Russian commercial television broadcasting group, for the purchase of a 75 per cent interest in the Company’s Russian (and Kazakhstan) business operations. The CTC Media Board of Directors has appointed a Special Committee composed of independent directors to review and evaluate this offer, consisting of Werner Klatten (Chairman), Tamjid Basunia and Jean-Pierre Morel.
The Board of Directors and the Special Committee have each reviewed the offer and believe that it is appropriate to seek to negotiate the final terms and definitive documentation in respect of the proposed transaction. The Special Committee has agreed to grant a period of exclusivity to UTH, during which the parties will seek to agree the definitive terms of the transaction. If ultimately recommended by the Special Committee and approved by the Board of Directors, the transaction would be submitted to the Company’s stockholders for approval.
Pursuant to the non-binding offer, UTH would acquire a 75 per cent interest in the Company’s operating businesses, on a cash- and debt-free basis, for $200 million in cash. Following this transaction, the direct and indirect ownership of the group’s operating businesses in Russia would comply with the Russian law requirement that at least 80 per cent of the ultimate beneficial ownership and control of the businesses is held by Russians by the stated deadline of January 1st 2016.
If the transaction is consummated, it is the Board’s intention to return value to the Company’s stockholders, and the Board is exploring the most efficient manner of doing so. Subject to the final terms of the deal, the business’s cash requirements, the transaction expenses incurred and the tax to be paid, the Board currently anticipates that the funds (including cash on hand) that would be available pro rata to the Company’s public stockholders and its largest stockholder would be expected to represent a modest premium to the closing price of the Company’s common stock on the Nasdaq Global Select Market on July 2nd 2015. The Company will continue to comply with applicable international economic sanctions with respect to Telcrest Investments Limited, a holder of 25 per cent of the Company’s common stock that is subject to US sanctions.
Werner Klatten, Chairman of the Special Committee: “We are disappointed that the change in Russian law regarding foreign ownership of television companies may require a sale transaction, but we are pleased that the efforts of the Board have resulted in an offer for a potential transaction that would, if successful, allow us to secure value for our public stockholders and our largest stockholder. Although we cannot guarantee that we will be able to conclude this proposed transaction, or when it would be consummated, we believe this offer to be worth progressing further as a means of achieving compliance with the amended Russian Mass Media Law before year end.”
The discussions with UTH are at a relatively early stage and there can be no assurance that the Special Committee will be successful in agreeing definitive documentation with UTH, or that such transaction will ultimately close. The transaction would be subject to customary closing conditions, including clearance from the Russian Federal Anti-monopoly Service.
As previously announced, the Company engaged an international financial advisor in November 2014 that conducted a formal process to identify a potential buyer for the Company or its Russian businesses. No offers were received in that process.
International entertainment group MTG, which owns 37.9 per cent of CTC Media, has decided to reclassify its interest in CTC Media from an ‘equity participation’ to a ‘discontinued operation’. This reflects the fact that, following the change in the Russian mass media law regarding foreign ownership with effect from 1 January 2016, and CTC Media’s consideration of the above offer, MTG’s shareholding in CTC Media is now for sale.
With effect from its Q2 results to be published later this month, MTG will therefore report its income from ‘continuing’ and ‘discontinued’ operations separately, with dividends received from CTC Media; transaction costs incurred in relation to a sale of MTG’s stake in CTC Media; and the difference between the market and book value of MTG’s holding in CTC Media at the end of each quarter, included in a single ‘discontinued operations’ line below ‘net income from continuing operations’ in the Group’s income statements.
Following the recent sharp fall in the CTC Media share price, the market value of MTG’s holding in CTC Media was below the book value of the holding on MTG’s balance sheet as at the end of the second quarter on 30 June, and this will be reflected in the ‘discontinued operations’ line in the Group’s Q2 results. The results for CTC Media will not be included in any other line items in the Group’s income statements for current or comparable prior periods, or in the Group’s segmental reporting. The Group’s cash flow statements and balance sheets will also include separate lines for the discontinued operations. Prior periods for 2015 and 2014 will be restated accordingly.
A file will be made available for download from mtg.com before MTG’s Q2 results announcement, in order to provide restated financial statements for prior quarterly reporting periods in 2014 and 2015 according to the above revised accounting treatment.