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Russian law forces CTC sale, hits MTG

Russian media giant CTC Media has sold a majority stake in its business to UTH Russia for US$200m as it seeks to comply with new ownership laws – hitting major stakeholder Modern Times Group (MTG).

Alisher_Usmanov

Alisher_Usmanov

UTH Russia, backed by billionaire Alisher Usmanov, will acquire 75% of the broadcaster, which operates CTC, Domashniy, Peretz and CTC Love in Russia, as well as Channel 31 in Kazakhstan.

CTC programming includes The Kitchen and Londongrad, while the company is also behind digital services including videomore.ru, domashniy.ru, ctc.ru, peretz.ru and CarambaTV.

MTG held a 38% stake in CTC and had been operating in Russia for nearly 15 years, but the introduction of the country’s new Mass Media Law is forcing the deal.

It prevents international companies from holding more than a 20% stake in Russian mass-media businesses, and will apply to all existing and future operations. The legislation will come into force on January 1, 2016, with Russian owners holding through off-shore companies having until January 2017 to comply.

The previous law had limited foreign ownership at 50% for channels that broadcast to at least half of Russia’s population.

Bloomberg reported during the summer that the proposed sale of MTG’s stake would result in a writedown of around 400m Krone (US$47m) for the Scandi operator, which was amongst the most exposed foreign companies in the country following the regulatory changes.

UTH claims to be one of Russia’s fastest growing commercial TV broadcasters and operates U Channel, Disney Channel and cablenet MUZ-TV. The firm was formed by the merger of Media One Holdings Ltd’s and Art Finance & Media Ltd’s TV assets in 2009.

In a statement, CTC said the sale had been “carefully structured to enable CTC Media to comply with Russian Mass Media Law while safeguarding the interests of stockholders in challenging times.”

The offer, first revealed in July, has been approved by the board of Delaware-based CTC ahead of the implementation of the new law on January 1, 2016. CTC’s other stakeholders include private equity groups and Telcrest.

CTC added in its statement that the company had “undertaken an exhaustive process since the introduction of the Mass Media Law in the second half of 2014 to identify alternatives that would allow the Company to achieve compliance with the law while best safeguarding the interests of the Company’s stockholders. The Board has concluded that the only viable option is a divestment transaction.”

Yuliana Slashcheva, CEO of CTC Media, said the sale “will enable the management team to focus on the business, with the issue of compliance with the Mass Media Law resolved.

“We operate in a very challenging market environment, but I am confident that as part of UTH our operating businesses will remain strongly positioned to build on our historical achievements as we continue to set new standards in media entertainment across Russia and Kazakhstan.”

CTC, which cut back its workforce earlier this year as it dealt with Russia’s dwindling ad market and adapted to new pay TV restrictions, added that the UTH offer was the only viable one it had received.

 

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