(Adds MTG CEO and analyst quotes, details)
MOSCOW/STOCKHOLM, March 11 (Reuters) - Russian television company CTC Media CTCM.O has agreed to buy network DTV Group from its shareholder, Sweden's MTG MTGb.ST, for $395 million as it looks to gain from Russia's fast-growing TV advertising market.
CTC Media, 40 percent owned by MTG (Modern Times Group), said in a statement on Tuesday 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.
Television advertising sales rose in Russia by 34 percent in 2007 to $4.3 billion and are forecast to grow 28 percent this year, data from Russia’s biggest TV advertising agency, Video International Group, showed.
“What you see is that consolidation in the Russian TV landscape is happening quite fast now,” MTG Chief Executive Officer Hans-Holger Albrecht told Reuters 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 fourth most-watched broadcaster in Russia, operates the CTC and Domashny (Home) channels and is the country’s largest TV network outside direct or indirect state control.
Albrecht said MTG got a “fantastic price”, and analysts agree that DTV’s financials last year implied 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 Russia, 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 the company can realise synergies and improve efficiency of DTV, bringing acquisition implied forward-looking multiples closer to CTC’s own levels,” said Julia Gordeyeva, analyst with ING Bank.
Apart from MTG, CTC Media’s main sharholders are Russian billionaire Mikhail Fridman’s Alfa Group with 26 percent and Access Industries with 6 percent.
Last month, CTC signed a deal to buy a 20 percent stake 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 $600-650 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.
“We are looking for investment opportunities in eastern Europe and, of course, consolidation opportunities in the Scandinavian market,” he said.
“The money we can’t invest we will use for share buy backs, and if there is still money left we will give it to the shareholders like always,” he said. (Editing by David Cowell)
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