TW crashes TV bloc party

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Flush with cash, Time Warner is taking advantage of the downturn in Central and Eastern Europe to step up its game in a region many see as having solid longer-term upside.

The conglomerate said Monday that it will spend $241.5 million to take a stake of about 31% in Central European Media Enterprises, a broadcaster focused on the Central and Eastern European markets.

The transaction comes after the media giant received $9.25 billion as part of the coming spinoff of Time Warner Cable that will allow it to focus on its content businesses.

With parts of Central and Eastern Europe reeling from the global recession, analysts said TW looks set to buy into the company at a low to get into a market with a good longer-term growth profile. CME's market capitalization as of Monday's close stood at $614 million after its shares finished up 45% at $14.50, still much nearer the stock's 52-week low of $4.67 than its high of $110.

"TW is in fine shape to be buying assets near the bottom in the global recession," Miller Tabak analyst David Joyce said.

In a separate deal, TW's Warner Bros. and CME have agreed to form a partnership to launch and operate thematic TV channels in CME territories, some of which will be Warner Bros.-branded. The channels will feature international films and TV series, including titles from Warners' library.

Under the investment deal, TW allows CME founder and nonexecutive chairman Ronald Lauder — heir to the Estee Lauder fortune — to vote TW's shares for at least four years, subject to certain exceptions. Also, Lauder has pledged to support TW's appointment of two designees to CME's board.

An investment group that includes private-equity firm Apax Partners and Lauder so far has had more than 60% voting control of the company.

For its investment, TW will receive 19 million newly issued CME shares. The transaction is expected to close before the end of the second quarter.

"This transaction with CME is a unique opportunity for us to invest in — and partner with — one of the leading media companies in Central and Eastern Europe," TW chairman and CEO Jeff Bewkes said. "While the region has been experiencing the impact of the global economic crisis, we believe CME is ideally positioned over the long term as Central and Eastern Europe returns to significant growth."

Added Lauder, "I'm confident that this alliance with Time Warner will accelerate CME's future development and take it to levels I could only dream of 15 years ago."

CME has TV operations in Bulgaria, Croatia, the Czech Republic, Romania, Slovakia, Slovenia and Ukraine, and it predicts deterioration in television ad spending in all its markets this year because of macroeconomic factors. On Monday, it updated its first-quarter expectations that reflect the continued challenges: CME projected revenue of $135 million-$145 million for the current quarter, a year-over-year decline of 35%-40%.

TW shares closed up 9.7% at $8.62 on Monday as part of a broad market rally. (partialdiff)
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