Russia's CTC Media Sweetens Buyout Premium, Titillates Investors

  • Broadcaster says buyout price will range from $1.77 to $2.19
  • Stock has lost 63 percent of its value in 2015 amid media law

Good things come to those who wait. In the case of investors who stood by CTC Media Inc., their loyalty is about to be partly rewarded.

Founded by a Californian media magnate whose ties to Russia hark to the Soviet era, the Moscow-based television broadcaster has lost almost two-thirds of its value this year. But with the forced sale of its operations, in the form of a buyout, shareholders can expect a premium of about 20 percent based on Friday’s closing price.

At the very least, it limits their losses. What remains to be seen is by how much. CTC -- whose origins date to 1989, the year the Berlin Wall came crashing down -- is about 75 percent held by international investors and had to cut the share of foreign shareholders to 20 percent under a media law that precipitated the buyout.

The updated guidance of the company’s year-end cash flow triggered Otkritie Capital Ltd. to upgrade the stock to buy and BCS Financial Group, which sees a 20 percent upside potential based on a buyout, to hold.

“There is still a lot of intrigue in what the payout price will be, but the recent update from the company gave much more optimism that the buyback deal will be closer to the upper range than the lower range,” Sergey Libin, an analyst at AO Raiffeisenbank in Moscow, said by phone last week. “For shareholders of a company that had quite significant trials and tribulations amid a new media law, this could be a pretty appealing deal.”

The company said in October that the buyout price will range from $1.77 to $2.19 per share depending on whether it meets a cash flow target at the end of 2015. The signs so far are encouraging. The stock rose 0.2 percent at 12:39 p.m. in New York on Monday after advancing 5.3 percent last week to $1.79 in the second-best performance on a Bloomberg gauge of Russian companies with U.S. trading.

CTC Media, whose shares listed in New York almost a decade ago, met its cash flow target in the third quarter and expects a cash shortfall of less than $10 million at the end of the year, the broadcaster said last week.

This leaves investors with about $2.10 per share, or a premium of 17 percent to the Friday close, according to Raiffeisenbank and Otkritie Capital. Raiffeisenbank’s Libin raised his projection on CTC Media to buy in March. Between May and early November he was alone, out of 12 analysts tracking the company, with a buy call on the stock.

The company reiterated that the sale of operations will ensure compliance with the foreign ownership restrictions and the range of the per share buyout price, when asked for a comment.

Russian Billionaire

In a move to extend Kremlin’s grip over the media, President Vladimir Putin signed last October a law curtailing foreign ownership of media companies in the country. For CTC, it means ownership of the independent broadcaster’s TV stations will pass to Russian billionaire Alisher Usmanov, who co-owns Arsenal Football Club in London. The Bloomberg Billionaires index values his fortune at $12.2 billion.

Usmanov will pay $200 million for an 80 percent stake in the operating business of the broadcaster, whose market capitalization stands at $279 million, compared with $770 million at the beginning of 2015.

Boris Vilidnitsky at Barclays Plc is one of two analysts tracking the company who is sticking to his sell guns. Vilidnitsky’s recommendation -- unchanged since he began covering the stock in 2013 -- has produced a 63 percent return for investors who took his advice in the past 12 months.

Limited Visibility

“There is a motivated seller who needs to sell, and there is just one buyer, and CTC Media has no way out but to sell,” Vilidnitsky said by phone last week. “The current situation CTC is not necessarily easy, and the visibility for shareholders is very low.”

CTC Media’s third-quarter revenue dropped 51 percent compared with the same period a year ago. The company kept its free cash flow at above $100 million, which gives a “good basis” for the buyout price to be at the upper range of $1.77 to $2.19 per share, according to BCS’s Mitch Mitchell.

“Now it’s all about what happens in the fourth quarter and how much cash available CTC will have,” Mitchell said by phone form Moscow last week. “At this point, all shareholders care about is the buyout price.”

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