Central European Media Enterprises (NASDAQ: CETV) is a media company that controls and and develops local and national television stations. It’s a small-cap, roughly $370 million market cap company, that has an underrated activist investor pushing for change. TCS Capital is the activist involved, looking to unlock value at Central European Media by getting the company sold.
TCS has owned shares since 2004, but just went activist in November. We highlighted the name in early December for readers via our new idea generation product.
TCS is pushing the company to hire a financial advisor to sell itself. They own right at 11% of the company. This is a big bet for the small fund, which has just around $250 million in assets under management. The activist hedge fund has Central European Media as its top holding as well, making up nearly 20% of its portfolio.
TCS Capital was founded by Eric Semler in 2001. Semler was an MD at WaterView Advisors before TCS. He also spent time at Georgica Advisors, Montgomery Securities and BT Wolfensohn. Interestingly enough, Semler started his professional career as a journalist for the New York Times. He did his undergrad at Dartmouth and has a JD and MBA from Harvard.
Not surprising, given Semler’s experience, TCS focuses on companies in the media and telecom sectors. They run a concentrated portfolio, with 80% invested in the top 10 holdings.
The fund is relatively new to the activist game, with its first official activist campaign coming earlier this year at Angie’s List (NASDAQ: ANGI). WIth that, TCS is the same hedge fund that has had the best performing activist hedge fund campaign of 2015. Shares of Angie’s List are up nearly 120% since TCS went activist in July. That’s a decent return thus far and since going activist at Central European Media the stock is up 30% – again, worth noting we talked about this stock in the Dec. 1 edition of Activist Ideas.
Why The Opportunity Exists
The 50% fall in Central European Media’s stock price over the last three years is in large part to be blamed on Time Warner Inc. (NYSE: TWX), who took control of Central European Media over two years ago. Time Warner currently owns 49.9% of the company, which effectively puts them in control of the company. Another issue that’s been a drag on the company is the 15% interest rates Central European Media is paying on about half of its debt to Time Warner.
The most upside would come from an outright sale of the company. TCS believes the stock is highly undervalued, while at the same time, it’s a desired asset for other media companies. There is a precedent for this type of sale in the media industry as well – Scripps Networks Interactive, Inc. (NYSE: SNI) earlier this year purchased Polish based media company TVN. The agreement was to acquire a 52.7 percent interest in the Polish company. The deal went through and the US media group Scripps purchased the stake at $843.64 million. The move gave Scripps a foothold in the European market. Central European Media would allow Scripps or another buyer to make an even bigger splash in the media market.
Over the next few months keep a look out for Central European Media’s response to TCS’ concerns. Time Warner working out a deal to refinance the debt is a first step. Underneath TCS are a few other minority shareholders of note, such as Neon Liberty Capital owning 4.6 million shares, which is about 15% of its portfolio. It’ll take investors like this to step up their game and agree with TCS.
The biggest risk is that Time Warner will play hardball. The cable giant has said that their operations are plateauing in the U.S., which means they’ll need to put their efforts toward foreign and international operations. Central European Media is one of their largest international holdings, but keeping the company public isn’t a viable option – there are other ways for Time Warner to benefit here.
Central European Media – Conclusion
The high interest that Central European Media is pretty well absurd with interest rates, especially given interest rates are at historic lows in Europe. Some of the possible buyers of Central European Media include Discovery Communications (NASDAQ: DISCA), Scripps Networks and RTL, which all have been acquiring media assets in the region. And if Time Warner doesn’t want to give up its Central European Media stake, it could help take the company private. Having Central European Media private would remove the public company costs and debt guarantees, further reducing borrowing costs.
This is just a taste of what we’re doing with Activist Ideas. Shares of Central European Media are up 25% since we first highlighted the name on Dec. 1. If the success at Angie’s List is any indication, there’s plenty more upside at Central European Media. Activist Ideas is a new idea generation tool meant to bring you fresh actionable ideas each week. Learn more here and sign up before rates go up.