The wave of consolidation between telecommunication companies and TV-operators is finally hitting Bulgaria. After Czech billionaire Petr Kellner bought the Bulgarian subsidiary of Norway's Telenor in 2018 he attempted to acquire Nova TV, but the Commission for Protection of Competition rebuffed his bid. Now he might finally get his hands on a TV-asset in Bulgaria. By the middle of next year, Mr Kellner and his PPF Group are expected to complete the acquisition of Bulgaria's bTV and four other media assets in the region from the current majority owner, U.S. CME.
In a parallel move, United Group which partnered with Mr Kellner on the unsuccessful NovaTV bid will acquire Bulgaria's largest telecom, Bulgarian Telecommunications Company (BTC). Netherlands-registered United Group will be the sixth consecutive owner since BTC privatization 15 years ago and the draft contract has been already signed. This again is a merger between telecommunication and TV-company since United Group is the largest alternative Pay TV platform in the region of Former Yugoslavia.
The BTC deal
The acquisition of BTC is expected to be completed in the second quarter of 2020 and is contingent on regulatory clearance and other conditions. The deal values the Bulgarian telecom at between 1.2 and 1.3 billion euro, i.e. seven times EBITDA. The other candidate for BTC was U.S. fund Providence.
Though BTC is joining a telecommunications and media group active in all former Yugoslavian countries, this time again the buyer is not a strategic investor. In spring, London-based BC Partners acquired a majority stake in United Group and American investment firm KKR remained a minority owner. The deal valued United Group, which has more than 700 million euro revenue and nearly 1.8 million paid TV subscribers, at 2.6 billion euro.
As a result of the deal, by the middle of next year BTC will become part of a large Balkan family. United Group began its business in 2000 as a small cable operator named KDS (Kablovski distributivni sustav) and established by Serbian businessman Dragan Solak. Through acquisitions and organic growth the company expanded to become Serbia Broadband (SBB): a leader today in cable TV with more than 50% of the market and second in landline internet services with about 30%. Over the years, a number of financial investors contributed to that growth but Solak always remained connected with the company as a key figure and minority shareholder.
In 2007 SBB was acquired by Mid Europa Partners, which also bought Telemach operating in Slovenia, Bosnia and Herzegovina and Montenegro. These companies were amalgamated into United Group, which launched a paid TV service under the brand NetTV Plus, offering a series of self-produced sports, movie and other channels.
In 2013 the majority package in the group was acquired by Kohlberg Kravis Roberts (KKR), a U.S. investment fund, and the deal valued the telecom at $1.3 billion. With the new owner, United Group's expansion through acquisitions continued. In 2015 it bought Tus Mobil, a small Slovenian mobile operator, and in 2017 - in partnership with Google EON - it developed a mobile television platform. The penetration of the Croatian market started in 2018 with the acquisition of Nova TV from CME, the owner of Bulgaria's bTV. A €220 million deal for the Croatian business of Sweden's Tele 2 was announced in 2019 but it has not been finalized yet. Meanwhile, the majority package in United Group (51.77%) was sold to BC Partners and KKR retained a minority share.
Who exits BTC?
In 2016 BTC was acquired by a consortium of investors led by Bulgarian businessman Spas Rusev. The seller was Russia's VTB, which controlled the telecom as it had been used as collateral for a bridge loan provided by VTB for the previous acquisition - by companies controlled by Commercial Corporate Bank owner Tsvetan Vasilev. After the bank's failure, the loan could not be serviced.
Following a tender, BTC's was sold to Luxembourg-registered Viva Telecom for 330 million euro. As a result of the deal Mr Rusev acquired 46%, VTB took 20% less one vote, Delta Capital Investments (controlled by VTB's Bulgarian representatives, Milen and Georgi Velchev and Krasimir Katev) got 19% and the remaining 15% plus one vote was for the former creditors. Besides, VTB provided a large part of the financing - 240 million euro, BTC's final owner - Viva Telecom was pledged in its favor. It is not clear whether the share distribution has remained the same but a declaration on BTC's ownership filed earlier this year shows Mr Rusev as controlling 46% of the telecom.
BTC itself is also burdened with a 400 million euro debt. In 2017 it refinanced its bond issue and a syndicate of creditors, led by Citibank and involving VTB as the major financing institution, provided 345 million euro. A year later state-owned Bulgarian Development Bank joined the syndicate with 25 million euro and other creditors contributed 15 million euro. As part of the loan has been repaid, the debt currently amounts to 365 million euro. BTC also owes €35 million to Express bank under a revolving facility.
The figures show that BTC's fifth owner - Mr Russev, is exiting its three-year investment at a profit.
BC Partners' entry into BTC is a sign that the Bulgarian telecom market, small as it is, is still interesting for investors. If the London-based fund keeps on "shopping", that may produce a Balkan telecommunications and television giant, which, in time, may attract a large industry player.
By the middle of next year, United Group's partner Petr Kellner is expected to complete the acquisition of Bulgaria's bTV and four other media assets in the region from the current majority owner, U.S. CME. Ironically, Kellner was rejected as a buyer of another Bulgarian television, Nova, by the Commission for Protection of Competition. Later, Nova was acquired by the Bulgarian Domuschiev brothers, who paid 185 million euro to Scandinavia's owner MTG. However, with the bTV deal Kellner will now have a media business in Bulgaria. He is also the owner of the telecom in this country, Telenor.
The deal values CME at $2.1 billion. That includes the company's debt, which amounted to $665 million in the middle of 2019. PPF will finance the acquisition with a 1.15 billion euro loan. Besides a television in Bulgaria, it will also become the owner of televisions in Romania, the Czech Republic, Slovakia and Slovenia.
When the deal was announced Kellner commented that the acquisition of CME would strengthen PPF Group's telecommunications operations in Central and East Europe, as the purpose was to use the natural synergies between content production and distribution. As a matter of fact, his offer for Nova had that very purpose: combining content with Telenor Bulgaria's solutions.
"After the possible approval of CME's acquisition, we will review the options to take advantage of the natural synergies between Telenor Bulgaria and bTV. The convergence of telecommunications and content is a global trend," said PPF and added: "We are buying a well-managed and healthy media company with a high market share and many viewers and we are planning to further develop that business, which will have an important place in our portfolio."
Anyway, the TV puzzle in Bulgaria will be probably rearranged again, as three independent sources say that BTC's new owner, United Group, has an agreement with Kellner to buy bTV. According to the scenario, United Group will hold 51% and Kellner will keep the minority share. That will be a curious triangle: two theoretically competitive telecoms, BTC and Telenor, will partner in a television.
United Group's interest in bTV is somehow more logical than Kellner's, as it manages 33 channels in Serbia, Slovenia, Bosnia and Herzegovina, Montenegro, North Macedonia and Croatia, as well as local cable operators. It also has an advertising company in the region, United Media.
For the time being PPF denies having plans to sell any of CME's televisions. Even if they have an agreement on bTV it is not quite clear how they are going to share media assets and content, given that they will be competitors on the telecommunications market with BTC and Telenor. It is not clear either whether United Group will want to take full control of bTV.