Time Warner Sale Raises Questions About Stake in Eastern European TV Company

Hollywood's make or break Moments: 4 - Time Warner - H 2015
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One analyst says the telecom giant's planned $85.4 billion deal could lead to a sale of the entertainment company's stake in Central European Media.

What will the planned $85.4 billion sale of Time Warner to AT&T mean for the entertainment company's stake in Central European Media Enterprises, which runs TV networks across Eastern Europe?

At least one analyst believes it could lead to a sale of the stake in the company, which operates networks in Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia. 

Time Warner first bought a stake in CME, as it is known for short, in 2009, acquiring 31 percent for $242 million. It has since raised that stake. As of Dec. 31, Time Warner held an approximate 49.4 percent voting interest and an approximate 75.7 percent economic stake in the company, according to Time Warner's most recent annual report.

"Control of Central European Media Enterprises is even less consequential to the new [owner] AT&T than it would be for Time Warner," Wunderlich Securities analyst Matthew Harrigan wrote Monday in a report. He also mentioned "possible M&A interest from either large media companies or smaller entrants coveting high-growth individual market assets."

Harrigan referenced local media reports that have suggested that European investment firm Penta Investment was a potential buyer. "Penta is focused on print, largely in Czech, Poland and Slovakia, even as newspaper advertising atrophies and TV assets offer political clout," he explained.

The analyst also mentioned Scripps Networks Interactive, which owns Polish TV giant TVN, as a possible buyer. And he argued that CME could also sell off its operations in various countries to local media groups there.

The company, whose stock trades on NASDAQ under ticker symbol CETV, has emerged from a challenging period economically in Europe and is due to announce its third-quarter results on Tuesday. With the help of Time Warner, it also has improved its financial position after struggling with its debt load.

Time Warner’s investment in CME consists of common stock, convertible preferred stock that has voting rights, convertible redeemable preferred stock that does not have voting rights and warrants to purchase common stock. Time Warner also guarantees or holds a significant portion of CME’s outstanding debt and provides financing to it under a revolving credit facility and term loan.

Time Warner and AT&T representatives declined to comment on the plans for the stake in CME.

CME co-CEO Michael Del Nin on the company's quarterly earnings call on Tuesday was asked about the expected impact of the planned Time Warner sale on CME. "There is no change for us," he said. "We anticipate the proposed transaction would not have an impact on CME as relates to our current financing structure. Importantly, … it really demonstrates the value of premium content … and that is very much what this company is built on."

Oct. 25, 6:45 a.m. Updated with executive comment.