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October 17, 2006

Central European Media Enterprises In NY Times and Wall Street Journal

Yesterday’s New York Times had a major article about Ronald Lauder’s investment in Central European Media Enterprises (CETV). In an odd coincidence, the Wall Street Journal had an article the same day about the attractive television markets in Central and Eastern Europe. My good friend and major CETV shareholder, Mark Riely, was mentioned in both articles. Kudos to Mark for hitting two such prestigious papers in the same day!

I suspect that the genesis of these articles may have been CETV’s September analyst meeting in New York City. In fact, I went up and introduced myself to Lauder at the meeting by interjecting myself into a conversation he was having with a woman who turned out to be the New York Times reporter who wrote the story, Geraldine Fabrikant.....

I have always been curious about financial journalists who listen to conference calls and attend analyst meetings and Wall Street conferences. It is no shock that good journalists see these events as places where they can get a good story. I guess what never crossed my mind before was that company’s can use these same events to spread the word about their stocks. I know that sounds naïve coming from a money manager with 25 years experience but press relations is an important corporate function that is often overlooked.

As for the articles, both laid out my bull case for CETV – advertising markets in Central and Eastern Europe are growing very rapidly as major corporations attempt to establish their brands in quickly developing consumer economies. Add in increasing stability in the political, economic, tax, and regulatory environment and the fact that most consumers/TV viewers in these markets only watch a handful of state-owned and private stations or networks and you have a very attractive market business opportunity.

The only downside to the Central and Eastern Europe television story is that it is beginning to attract increasing amounts of capital. For CETV, this means acquisitions are more expensive and that it faces better competitors which will require more investment in the local operations to maintain ratings.

For the next few years I don’t see that as a problem as overall region ad growth in the 15-20% range leaves plenty for all concerned. Further, if Lauder is ever willing to sell the rest of his control stake in CETV, I’ll be really happy that acquisition multiples have been bid up.

The bottom line is that these two articles provide a thumbnail of the reasoning behind recent decision to invest $190 million in CETV by purchasing half of Lauder’s stake. Apax has a pretty good track record and is certainly smart money. I am still adding to CETV for all my new clients even with the stock at close to record highs.

Posted by Steve Birenberg at October 17, 2006 07:56 AM in CETV