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. Last Updated: 07/27/2016

Interros Buys Into TMT's Parent

Two of Russia's major publishing companies -- Prof-Media, part of Vladimir Potanin's Interros holding, and The Moscow Times' Dutch-controlled parent company Independent Media -- announced on Monday that they have formed a "strategic partnership," with Prof-Media buying a 35 percent stake in Independent Media. The price of the deal was not disclosed.

The deal, which is likely to be in the tens of millions of dollars, is a significant development for the still relatively small print media market, analysts said.

It appears to bolster the position of Prof-Media, which announced plans last month to realign its diverse holdings into a single-share Western-type publishing house, by offering it access to Independent Media's magazine publishing expertise and giving it another foreign-owned strategic partner. Norwegian publishing group A-pressen owns blocking stakes in the Prof-Media-controlled Komsomolskaya Pravda and Sovietsky Sport dailies and holds majority stakes in four printing presses founded by Prof-Media. Prof-Media also controls the national newspaper Izvestia.

At the same time, as long as Prof-Media remains a minority shareholder in Independent Media, the alliance does not pose a direct threat to the editorial integrity of the Vedomosti business daily, which is one-third owned by Independent Media, or The Moscow Times, which is fully owned by Independent Media, analysts said.

Prior to the sale, Independent Media had bought back a 35 percent stake from Dutch communication group VNU, which has been for sale since 2001, and a 10 percent stake from Menatep SA -- a Swiss company related to Mikhail Khodorkovsky's Yukos holding.

As a result of the deal, Independent Media CEO Derk Sauer together with his Dutch partners have increased their stake in Independent Media from 55 percent to 65 percent, with Prof-Media controlling the remaining 35 percent.

"The strategic partnership between our companies should act as a stimulus for both of our businesses and create additional competitive advantages," Prof-Media CEO Vadim Goryainov said. "Independent Media is a recognized leader on the Russian magazine market, while Prof-Media has leading positions on the market of national daily and weekly newspapers. Together, we cover a broad segment of the market."

He said the purchase of the Independent Media stake increases Prof-Media's capitalization and should make it easier to attract a major outside investor. "Since the print media market is relatively small, the company has to be big in order to attract investment," he said.

Sauer said the alliance is good for his company because Prof-Media, which he said has worked hard to establish a reputation as the Russian print industry's most transparent company, serves as both a strategic partner and a Russian partner -- the roles previously played by VNU and Menatep.

"It gives us economy of scale," he said. "It gives us a good opportunity to cooperate in various areas -- distribution, marketing, printing, regional expansion, etc."

Sauer faced questions Monday afternoon from Vedomosti and Moscow Times reporters, who were concerned about possible threats to editorial integrity from Potanin's powerful group. But he assured reporters that nothing will change in the way the editorial side is run and that they should continue to report all political and business news as they have always done. "I don't expect you to change anything in your reporting of Interros or Menatep or any other company," Sauer told reporters.

He said the company has a track record of not mixing its business relationships with its editorial policy. "Actions speak louder than words," he said.

Sauer stressed that under Dutch law, under whose jurisdiction Independent Media Holding BV is registered, there is no concept of a blocking stake. With its 35 percent stake, Prof-Media will be protected in the same way as Menatep was with 10 percent. Prof-Media will have three representatives on Independent Media's nine-member nonexecutive board, which rules on major decisions such as a share issue and appoints the CEO, but has little say over the appointment of other top management and no say over the appointment of editors and publishers of newspapers and magazines, whose hiring and firing is entirely within the CEO's prerogative.

In addition to Izvestia, Komsomolskaya Pravda and Sovietsky Sport, Prof-Media also controls tabloid Express-Gazeta, the Antenna television guide and FM radio stations Avtoradio, Energia and Novosti Online. It owns stakes in a distribution company, Segodnya-Press, and a printing company, Prof-Media-Print, which is majority owned by A-pressen. Prof-Media also has minority stakes in Expert magazine and the Prime-Tass business news agency, which it said it planned to sell.

The company has a proclaimed goal of making a profit in publishing rather than using its media holdings to serve its owner's other business or political interests, as has been the typical approach of Russia's oligarchs.

It has championed the transparency cause in the publishing industry by having its print runs independently audited and pushing for a fixed retail price.

Last month, Prof-Media said it planned to build a single publishing house over two years. The new structure will oversee all financial, production and distribution issues, while each media outlet will retain control over its editorial and advertising departments.

Although it was not clear how the talks will develop, Goryainov has said that A-pressen is asking for 25 percent plus one share of the new holding. LUKoil, which holds 49 percent of Izvestia, would like 10 percent, and individual shareholders who own stakes in Komsomolskaya Pravda and Segodnya-Press are looking for 5 to 10 percent.

Goryainov said that in 2002, Prof-Media had a turnover of $90 million and a net profit of $13.5 million.

Sauer said that Independent Media had a turnover of $70 million and a $16 million profit before taxes.

With the parties keeping their mouths shut about the size of the deal, analysts were reluctant to guess. Alexei Moiseyev, an economist with Renaissance Capital, said that, based on the figures cited by Sauer, Independent Media could be valued anywhere from $50 million to $150 million, but more likely from $100 million to $150 million. That would put the price of the 35 percent stake at tens of millions of dollars.

Konstantin Isakov, co-owner of Mediamark media consulting company, said the acquisition of a stake in Independent Media further improves Prof-Media's already good position on the market and increases its chances of raising capital.

"For Prof-Media, it is first and foremost an entrance into the magazine market, which has been their soft spot," Isakov said in a telephone interview. "Thus the sum of its assets makes Prof-Media the largest publishing house in Russia. Such a player will be able to enter the financial markets."

Isakov said the new alliance of Prof-Media with both A-pressen and Independent Media is good news for Russia's media business and a tribute to Prof-Media's transparency drive. "It is the first time international media assets are united in Russia under the aegis of a Russian company," he said.

But Isakov said that Monday's announcement is only the first step in the process and Independent Media should be on its guard. "Although today Prof-Media does not seem to have control [of Independent Media], it is not clear whether they will stop there," he said. "I don't know what their appetites are."

Yelena Rykovtseva, a media analyst and editor of Radio Liberty's Moscow bureau, also said the deal appears to be good for both businesses and for the time being does not pose any threat to the editorial independence of Vedomosti or The Moscow Times.

"As long as Prof-Media does not have a controlling stake, there will be no problems," she said. "But if Prof-Media has bigger plans, it is a different story. We all see that Izvestia and Komsomolskaya Pravda sometimes look more pro-state than state-owned media."

Vedomosti editor Tatyana Lysova said the newspaper would have to fight a standard perception among Russian newsmakers that a business connection to an oligarch affects editorial policy.

"Since you don't choose your shareholders, I'm left to accept the guarantees of non-interference from our new shareholder that were given to me by Independent Media CEO Derk Sauer," Lysova said. But she added that when she worked at Expert magazine she wrote articles that were unpleasant for Interros and did not face any pressure.

Independent Media publishes numerous magazines in Russian: Cosmopolitan, Magia Cosmo, Harper's Bazaar, Domashny Ochag and Popular Mechanics, together with Hearst; and also Formula Zdorovya, Men's Health, FHM, Yes and Agro Biznes.

In addition to The Moscow Times, it publishes The St. Petersburg Times and Na Rublyovke newspapers. It has a joint venture with the publishers of Financial Times and The Wall Street Journal to publish Vedomosti.

Independent Media announced Monday it has a new joint venture with Prof-Media's Sovietsky Sport to launch a monthly sports magazine.