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Will Russia Annex CTC Media?

On July 6th, CTC Media (NASDAQ: CTCM) announced it had received a "formal, non-binding offer from UTH Russia, a privately held Russian commercial television broadcasting group" for the latter to acquire 75% of CTC's Russian and Kazakh business operations.

CTC explained that the UTH Russia offer would, when combined with other interests in CTC already owned by UTH Russia, give the acquirer "at least 80%" ownership of CTC. This would accord with a change in a Russian law "On Mass Media," which requires that television companies operating in Russia have at least 80% local ownership by January 1, 2016.

So far, investors are not taking the news well, with CTC shares trading down nearly 15%. Nevertheless, the company is currently reviewing the offer.
As CTC revealed, UTH Russia is offering to pay $200 million cash for the business. When combined with the $110 million in cash CTC has on hand, and less a mere $2 million in debt, this would value the transaction at about $310 million -- money CTC management says it would largely hand back to its shareholders in "the most efficient manner" possible.

In short, if this transaction goes through, there will be no further upside to owning CTC Media stock. That is not an appealing prospect for a company that, selling for less than four times earnings today, seems greatly undervalued and would ordinarily be expected to rise. But as CTC Chairman Werner Klatten explains, "the change in Russian law regarding foreign ownership of television companies may require a sale transaction."

In short, CTC Media is said to be considering the deal, but it really looks like an offer they can't refuse.

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