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April 25, 2005

Central European Media Enterprises Equity Offering This Week

Central European Media Enterprises (CETV) looks set to complete its financing this week for the acquisition of TV Nova, the largest and most successful television broadcaster in the Czech Republic. A review of the prospectus and several 8-Ks the company has filed indicate that all is well as the company....

....1Q results will be impacted by the usual seasonality (2Q and 4Q are seasonally strong and 1Q and 3Q are seasonally weak) as well as one-time items relating to the financing of the $680 million acquisition. Brief commentary on full year 2005 guidance suggests that there is no change in the outlook for another strong year of growth.

One issue did arise since the announcement of the 4.2 million share equity offering. The Czech Media Council has informed TV Nova that for the second time in a twelve month period it violated broadcasting standards. The violation appears similar to indecency issues in the United States. Two violations in aa twelve month period allow the Media Council to pull the license. I am told by a very large shareholder of CETV who spoke directly with management that the company has already spoken extensively with the Media Council and there is no chance the license will be pulled. CETV hopes to have this issue cleared up prior to the equity and debt offerings scheduled for this week but it is possible this could cause a delay in the deals. This morning CETV announced that two of the conditions on the purchase of an additional minority interest in TV Nova were met, including the agreement of the Media Council. Hopefully, this a good sign that discussions with the Media Council are proceeding favorably.

The financing package for the acquisition includes 4.7 million shares underwritten by JP Morgan and Lehman and 350 million Euro ($495 million) in fixed and floating rate bonds. The financing package is in line with my expectations and I still think CETV shares are headed much higher on the back of excellent station level results and a strong tailwind from the emerging consumer economies of Central and Eastern Europe. Television advertising, and in turn CETV, is one the only direct plays on this Central and Eastern Europe theme.

Posted by Steve Birenberg at April 25, 2005 08:37 AM