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Time Warner Buys Into CME

3/28/2009 2:00 AM Eastern

For Time Warner Inc., it’s $241.5 million down, and a little more than $9 billion to go.

Just weeks after receiving $9.25 billion in cash as a result of the spinoff of its MSO unit Time Warner Cable, Time Warner said it would spend about $241.5 million to acquire a 31% interest in a in Central European Media Enterprises (CME), a leading programmer in Central and Eastern Europe.

In a research note, Miller Tabak analyst David Joyce wrote that the acquisition is a good one for Time Warner and shows that the company is willing to use its cash to buy assets near the bottom in the global recession.

Analysts have been speculating for months what the company would do with the TWC dividend. And while Eastern European broadcasters weren’t necessarily high on anyone’s list, Joyce said that it allows Time Warner to tap into a potentially lucrative market at a low price.

“We think this investment is a positive for CETV [CME’s ticker symbol] and for Time Warner as well,” Joyce wrote. “Central and Eastern European countries are also suffering from the recession, perhaps lagging the U.S. in reaching a bottom and likewise the emergence, so the broadcasting (advertising-reliant) properties at CETV are also likely performing near a bottom.”

According to the deal, Time Warner will receive 19 million newly issued shares in CME, consisting of 14.5 million class-A common shares at $12 each and 4.5 million class-B super-voting shares at $15 each. Time Warner has also agreed to let CME founder and nonexecutive chairman Ronald Lauder to vote its shares for at least four years. Lauder has also agreed to support Time Warner’s appointment of two of its designees to the CME board of directors. The transaction is expected to close in the second quarter.

Lauder, who runs Estée Lauder International, the cosmetics giant named after his mother, is a former ambassador to Austria and a well-known philanthropist. He was listed No. 334 on Forbes magazine’s list of the world’s billionaires, with an estimated net worth of about $2 billion.

The deal appeared to cheer CME investors — stock in the company rose 20% ($2.50 each) on March 23 to $14.50 per share. The stock has since fallen back slightly, closing at $13.50 on March 26.

Separately, Time Warner and CME have agreed to form a partnership to launch and operate new thematic television channels in CME territories. The channels, some of which will be branded under the Warner Bros. name, will feature international films and television series, including titles from the Warner Bros. library.

CME operates broadcast networks in seven countries in Central and Eastern Europe (Bulgaria, Croatia, Czech Republic, Romania, Slovakia, Slovenia and Ukraine) and reaches about 97 million people.

“This transaction with CME is a unique opportunity for us to invest in — and partner with — one of the leading media companies in Central and Eastern Europe,” Time Warner chairman and CEO Jeff Bewkes said in a statement. “While the region has been experiencing the impact of the global economic crisis, we believe CME is ideally positioned over the long term as Central and Eastern Europe returns to significant growth and the media sector in these countries continues to evolve.”

Time Warner completed the spin of its 85% interest in Time Warner Cable on March 12, and as a result received a cash dividend of $9.25 billion. The company expects to distribute its Time Warner cable shares to its shareholders on March 27.

Citigroup is serving as financial adviser to Time Warner and J.P. Morgan is serving as financial adviser to CME.

September