M&A in CEE: cash and politics
BY Georgi R. Chakarov & Yako Molhov
The outgoing TV season proved quite dynamic when it comes to the Mergers and Acquisitions (M&A) scene in Central and Eastern Europe. But the overall impression of what should have been strictly business transactions is that change of ownership in the media in the region is not just a question of money but much more so a question of politics. Without solid backing from authorities, investors have found themselves buried in long procedural maneuvering to get the green light from the state to acquire media assets.

Undoubtedly, one of the most important deals for the region in the past year was Czech PPF Group’s acquisition of Telenor’s wholly-owned mobile operations in Hungary, Bulgaria, Montenegro and Serbia for the total value of 2.8 billion euros. It was preceded by the announcement that PPF will buy Bulgarian Nova Broadcasting Group for the significantly smaller sum of 185 million euros.

As to how PPF Group will combine and create synergies between these two major new communication assets remains to be seen, but it is even more interesting to analyze the events around Nova’s sale and the as yet missing approval from the Bulgarian authorities to finalize the deal.

It was ‘public secret’ that Nova, which operates FTA, cable channels and a rich digital portfolio, is out on the market looking for buyers for the past couple of years. The reason – MTG’s strategic decision to offload all of its TV operations in CEE and the Nordics, and to focus on digital growth. MTG acquired Nova from Antena Group back in 2008 for the bombastic sum of 620 million euros. It is bombastic even from a current perspective since the failed deal to sell MTG Nordics, which generates sales of 4.1 billion euros annually, had a price tag of 325.3 million euros in February this year; on that note, Nova made 97.6 million euros in 2017.

MTG still managed to get a good price for its Bulgarian TV assets (185 million) as it was believed it would be hard to sell Nova for more than 100 million euros. MTG was forced to extend the deadlines for the possible sale several times (supposedly due to lack of interest from ‘reliable’ investors) before it finally struck a deal with the Czech investment company. PPF’s interest could mainly be explained in combining Nova’s TV operations with Telenor’s offer which currently lacks any pay TV/entertainment packages, causing it to fall behind its competitors in the region.

Interestingly enough, earlier this year there were reports that CME, the owner of Bulgaria’s biggest commercial net – bTV, is also looking to sell its operations in CEE. PPF was reportedly interested in acquiring all of CME’s operations in the Czech Republic, Slovakia, Bulgaria and Romania, in a joint venture with other Czech and Slovak investors (Penta Investments) and Chinese investment company CEFC, for around $2 billion, or ten times more what PPF agreed to pay on its own for Nova.

While this makes the price look more than reasonable, finalizing the deal for Nova could take a considerable amount of time. The Bulgarian Commission for Protection of Competition (CPC) launched the process of reviewing the acquisition only at the end of May, while the Czech company reportedly filed the necessary documents in April. According to the local legislation, CPC must launch a review within three days of the filing of the documents. The reason for the delay, according to rumors, is the unwillingness among certain business and political circles for this deal to happen. The process could take up to four months, with an extension of 25 days also being possible, rather than the 25 days needed for a standard evaluation. There were no delays in the approval of MTG’s acquisition of Nova in 2008 and also of CME’s deal with Fox and Krassimir Guergov for bTV Media Group in 2010. That is why the delay in the approval of the current deal for Nova looks suspicious.

More doubts were cast over the possible finalization of the transaction following the news about a draft law for limiting/banning gambling ads on TV. It happens so that Nova’s biggest advertiser is The National Lottery, owned by one of Bulgaria’s most-notorious businessmen - Vassil Bozhkov. Should the new legislation come into force, this may result in a serious ad revenue loss for the broadcaster. Currently, the National Lottery has a 30-minute TV show aired each Saturday on Nova, as well as daily draws and numerous ad spots with winners from the scratch lottery games. The Lottery’s annual investment in this partnership with Nova is estimated at around 10-15 million euros per year, i.e. over 10% of its annual revenues.

Would this make PPF Group think twice over finalizing the deal?

Meanwhile, the rumor mill continues to spin and in April there were reports that investment company Penta still intends to expand its business into the television segment. The initial plans to join forces with Chinese giant CEFC in order to buy CME’s channels seem to have collapsed but Penta is reportedly going for a different move. According to Trend.sk, the company is focused on gaining full control of CME’s operations in Romania and Bulgaria while the strategy for Slovak Markiza and Czech TV Nova is to find a partner in order to avoid problems with the cross-ownership ban in the CE countries. The interest of Penta in Markiza has long been public secret in the media world but the current legislation prohibits one company to own both a national newspaper and broadcaster. The latest information claims that the company has found a way to acquire CME’s channels with the help of a new partner. The transaction would then take place by dividing the CME group into individual national televisions. The business partner in the potential consortium would officially dominate Slovak Markíza and Czech Nova, while Penta will be managing the sister nets in Romania and Bulgaria.

Another big player - United Group, has found itself in a similar complicated situation. Almost a year after it announced its intention to acquire CME’s operations in Croatia and Slovenia, it has not been able to finalize the deal due to a delay in the approval process.

The transaction worth 230 million euros would see United Group buy the biggest commercial TV players in the two countries thru its subsidiary Slovenia Broadband. The problem, however, is that the company is among the biggest pay TV players in the region.

After first getting a prompt refusal from the Croatian authorities, United Group was forced to sell the Croatian arm of pay TV provider Total TV to Bulgarian investor Lyubomir Minchev. Two months later, in March this year, Croatia’s Council for Electronic Media (VEM) greenlighted Slovenia Broadband’s acquisition of Nova TV d.o.o.

A similar move in Slovenia, however, is impossible due to the fact that United Group owns the biggest cable TV operator in the country, Telemach, which is also one of the most profitable companies in its portfolio. From the group claim that the Slovenian Agency for Protection of Competition (AVK) is still in the process of evaluating a possible concentration of companies. They also highlighted that over the past 8 months they had fully responded to all the requirements of AVK and, in line with the EU standards, proposed pro-actively a whole set of guarantees dealing with the concerns about the merger with Pro Plus. From Slovenia Broadband suggested to sell the children’s channels Orlando Kids and OK Bambino and keep Pro Plus as a standalone company without any related entities for five years from the date of the deal’s entry into force. In addition, the notifying party would accept all reasonable requests for the conclusion of a new license agreement on the re-trans mission of the Pro Plus channels, which should be provided by any interested operator under the terms that wouldn’t be less favorable to them. The advertising clients of the Pro Plus channels will not face the obligation of exclusive cooperation. There have been reports that AVK agrees with these measures but there has not been an official confirmation yet.

A decision on the matter has also been delayed due to political turmoil resulting in early elections held this June which will most likely further postpone the process. There have also been debates if the Ministry of Culture should approve the deal but the previous cabinet claimed that this is not necessary as Pro Plus is not the broadcaster of channels POP TV and Kanal A. Meanwhile, the National Bureau of Investigation confirmed that it is investigating Pro Plus and Telemach, among others, over possible obstruction of competition related to the exit of the TV channels from the FTA market. There have also been calls among the political parties to change the head of AVK, and it looks like a final decision on the ownership change of Pro Plus will not be made soon.

That such acquisition deals in the region run smoothly and swiftly with solid political backing was recently proven in Turkey and Greece. Two weeks after confirming talks with Demirören, Dogan Holding announced that it has completed the sale of its media assets to the pro-government publishing company. The $916 million deal was backed by state-owned Ziraat Bank thru a 10-year loan with a low interest rate and a two-year waiver period. The deal is reminiscent of the $750 million lent by state banks Halkbank and Vakıfbank to government-linked Çalık Holding in 2008 to buy the Sabah-ATV group.

Similarly, in Greece the authorities saw no reasons to investigate the ownership change of Epsilon despite reports of falsified documents and non-existing persons mentioned in the shareholding structure of the channel. Ivan Savvidis bought the station from Filippos Vryonis for the reported price of 15 million euros in August last year. Both businessmen are among the biggest supporters of the Syriza government. In June, Vryonis launched New Channel, replacing his other network Extra Channel.
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