Time Warner deals with CME

Will take 31% stake in Euro broadcaster

NEW YORK -- Flush with cash, Time Warner is taking advantage of the downturn in Central and Eastern Europe to step up its game in a region that many still 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 a spin-off of TW Cable in the coming days that will allow it to focus on its content businesses.

It also comes at a time when parts of Central and Eastern Europe are 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 market close stood at $614 million after its shares finished up 45% at $14.50.

That was 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 new thematic TV channels in current CME territories, some of which will be Warner Bros. branded. The channels will feature international films and TV series, including titles from Warner Bros.' library.

Under the investment deal, TW allows CME founder and non-executive 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 has so far 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 and the media sector in these countries continues to evolve."

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 predicts deterioration in television ad spending in all its markets this year thanks to macroeconomic factors. On Monday, it updated its first-quarter expectations, which reflect continued challenges due to the recession. CME projected revenue of $135 million-$145 million, a year-over-year decline of 35%-40%, for the current quarter.

"The first quarter of 2009 has been extremely challenging," CME president and COO Adrian Sarbu said.

Amid a broad stock market rally, TW shares closed up 9.7% at $8.62.