Central European Media Enterprises Ltd. (CETV:US) rose the most in seven weeks in Czech trading after Bank of America Corp. said Time Warner Inc. (TWX:US) may increase its minority stake in the broadcaster this year.
CME, as the company is known, climbed 5.2 percent to 146.5 koruna at its close in Prague, making it the best performer in the 14-member PX (PX) equity index, which slid 0.3 percent today.
Time Warner is likely to buy CME shares this year and next to help the company refinance $130 million of debt due in March 2013, and may attempt to take over the company, BofA analysts led by Singapore-based Mariya Kahn wrote in a report to clients yesterday. The bank has a buy recommendation on the stock.
“This could either be an outright buyout or an initial capital injection from Time Warner at a premium to the market price in 2012 before taking full control in mid-2013,” the analysts said. “The benefits of taking control of CME would outweigh the costs for Time Warner.”
In the U.S., its home market, the stock fell 7.5 percent to $7.85 today by 10:32 a.m. New York time. It jumped (CETV:US) 20 percent yesterday, the biggest one-day rally in three years, following the publication of the BofA report.
The Bermuda-registered operator of television channels in central and eastern Europe has been battling a slower-than- expected pickup in advertising sales as the economies in the region emerge from recession. The net loss in the last quarter of last year widened to $72.4 million from $26.1 million a year earlier after CME took a one-time impairment charge of $68.7 million. Operating income before depreciation and amortization jumped 25 percent and revenue rose 8 percent in the same period.
CME had its shares cut to hold from buy last month at Deutsche Bank AG, which said that stagnation in the advertising market will hurt the company’s cash flow and may force it to issue new shares at a discount to market price. The German bank lowered its price estimate for CME shares to $8.30 to $12.80.
Time Warner purchased a 31 percent stake in CME for $241.5 million in May 2009 with the agreement that Ronald Lauder, CME’s founder and non-executive chairman, will control Time Warner’s voting rights in the company for at least four years. Time Warner increased its stake to 34.4 percent in March 2011.
“We think the market’s concerns about possible dilutive equity raising for CME are overblown and argue for an anti- consensus scenario that Time Warner will once again come to the rescue,” the BofA report said. “CME is in a much healthier financial situation today than it was three years ago, when it still managed to avoid a discounted rights issue.”
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