CTC Media Says It Will Buy DTV for $395M

Television company CTC Media has agreed to buy network DTV Group from its shareholder, Sweden's Modern Times Group, for $395 million, as it looks to gain from the country's fast-growing TV advertising market.

CTC Media, 40 percent owned by MTG, said in a statement Tuesday that it expected to close the deal by the end of the second quarter of 2008.

"DTV is a well-run, profitable and established network that will increase our exposure to the fast-growing Russian TV advertising market," CTC chief executive Alexander Rodnyansky said.

Nationwide television advertising sales rose in the country by 34 percent in 2007 to $4.3 billion and are forecast to grow 28 percent this year, according to data from the country's biggest TV advertising agency, Video International Group.

"What you see is that consolidation in the Russian TV landscape is happening quite fast now," MTG chief executive Hans-Holger Albrecht said in Stockholm.

"It's going to be three or four big blocks of television in Russia. Therefore, to have a small channel alone is not that interesting," Albrecht said.

CTC, the country's fourth most-watched broadcaster, operates the CTC and Domashny channels and is the country's largest TV network not under direct or indirect state control.

Albrecht said MTG got a "fantastic price," and analysts agree that DTV's financials last year implied that the acquisition was not cheap.

"To justify the purchase price, CTC will have to deliver a material improvement in DTV's financial performance," Renaissance Capital said in a note.

DTV, a general entertainment channel acquired by MTG in 2001, generated $40 million in net sales in 2007 and an operating profit of about $4 million. As of February 2008, DTV's signal reached 60 percent of households across the country, and its audience share stood at around 2 percent.

"We are shareholders in CTC, and CTC will benefit a lot from DTV because they have a lot of synergies and they are going to be the largest independent television media house in Russia," Albrecht said.

"We think that the company can realize synergies and improve [the] efficiency of DTV, bringing acquisition implied forward-looking multiples closer to CTC's own levels," said Yulia Gordeyeva, an analyst with ING.

Apart from MTG, CTC Media's main shareholders are Mikhail Fridman's Alfa Group, with 26 percent, and Access Industries, with 6 percent.

Last month, CTC signed a deal to buy 20 percent in Channel 31, Kazakhstan's fourth-largest television network in terms of audience share, for $65 million.

CTC posted a 28 percent jump in 2007 net income to $135.9 million. It said it expected to generate revenues in the range of $600 million to $650 million this year, up from $472.1 million in 2007.

Asked how MTG would use the proceeds from the DTV sale, Albrecht said the firm was considering Romania and Slovakia as possible markets for investment.