CTCM - CTC Media

[SnarkyPuppy]

I'm no expert, but looks like the Russian government approved the transaction.  Seems like it's almost definitely going to through

 

At current price $1.75, there is likely no downside and potentially ~20% upside to be paid back mid February.  Upside is dependent on change in cash spend as reported by CTCM Q4 but refer to estimates above...

[SnarkyPuppy]

http://www.bloomberg.com/news/articles/2015-11-15/russia-s-ctc-media-sweetens-buyout-premium-titillates-investors?cmpid=yhoo.headline

[ATLValue]

thanks

[ATLValue]

Yesterday's announcement:

 

"We are pleased to announce that the Russian Government Commission responsible for the Control of Foreign Investments in the Russian Federation has approved the proposed sale. We are also happy to confirm that MTG, our largest stockholder, has voted in favor of all proposed transactions. We would like to thank our stockholders who have already voted by proxy — however, we understand that not everyone has voted yet. Given, that there isn’t much time left to submit a vote, we would like to remind you that the Company will not be able to complete the sale or the merger unless we receive the affirmative vote of the holders of at least 50% of our outstanding shares of common stock. If we do not obtain the requisite vote, the sale will not close. If the sale transaction is not approved and does not close by the end of the year, we expect that our operating business will not comply with the foreign ownership restrictions of the Mass Media Law as of January 1, 2016. The Company may not be able to consummate another sale transaction, or implement an alternative transaction, before the end of 2015. As previously announced, a failure to vote has the effect of a vote against the sale and the merger. We would like to thank you again for your participation and your consideration of this extremely important matter.”"

So with MTG and Telcrest CTCM ALREADY has approval from more than 50% of existing shareholders. And with this prior announcement:

 

"In the merger, each outstanding share of common stock (except for shares held by Telcrest, by the Company and by stockholders who have properly exercised appraisal rights) will be converted into the right to receive the merger consideration, which will be between $1.77 and $2.19 per share in cash. The minimum merger consideration of $1.77 per share reflects the maximum potential reduction in the purchase price pursuant to the terms of the sale agreement, and the actual amount of such consideration will depend on the operating performance of the Company’s business during the second half of 2015 and the anticipated cash reserves that will be appropriate in light of potential liabilities at the time of closing. If the Company’s available cash at the effective time of the merger is insufficient to distribute merger consideration of at least $1.77 per share, the Company will resolicit stockholder approval for the proposed transactions. Otherwise, the Company may consummate the sale and the merger if its board of directors determines that all applicable conditions have been satisfied and the merger consideration is at least $1.77 per share."

So basically the deal is approved and the minimum price to be received is $1.77 with a possibility of receiving up to $2.19.

 

With the current market price of $1.77 - $1.78 this seems pretty close to a sure thing

 

Anyone have any other thoughts?

[ATLValue]

Natasha Tsukanova, Co-Chairman of the Board: “We are delighted that our stockholders have approved the sale of a 75% interest in our operating business in advance of the effectiveness of the foreign ownership limitations imposed by the Russian Mass Media Law. We are also pleased that stockholders have approved a subsequent merger transaction that will allow us to return value in cash to stockholders, assuming receipt of a license from the Office of Foreign Assets Control of the U.S. Treasury Department, which is still pending.”

 

http://ctcmedia.ru/press-center/releases/?id=5261#.VnMhBfkrK70

 

 

[aws]

I see the final payment came in and the reduction in purchase price was only $7.5 million, but now the estimate of the final payment to shareholders to be in the "lower end of the upper half of the range".  I guess that means $1.98-$2.05 to be received approximately one month after receipt of a license from the Office of Foreign Assets Control of the U.S. Treasury Department. 

 

That payout is based on holding back some cash as a reserve for future liabilities.  Is it possible that shareholders would also receive a stub payment in the future if that reserve proves unnecessary or will one payment be all you get?

[ATLValue]

That is a good question, I think that is correct though, normally they would hold some cash in escrow for 1 - 2 years for future liabilities. It should be in the purchase agreement so you can look that up.

 

One question I have is how long will it take to receive this license from OFAC? I'm assuming it is just a matter of filing the paperwork but what is the real risk here?

 

BTW, I bought a position this morning, Risk / Reward is really attractive considering the deal has already gone through. Great trade in a volatile market IMO

[SnarkyPuppy]

Does anyone have experience with the formality of obtaining this license?  Looking at a 6.5% return here

[aws]

From: https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_general.aspx#licenses

 

77. How can I find out the status of my pending license application?

 

OFAC will notify applicants in writing as soon as a determination has been made on their application. The length of time for determinations to be reached will vary depending on the complexity of the transactions under consideration, the scope and detail of interagency coordination, and the volume of similar applications awaiting consideration. Applicants are encouraged to wait at least two weeks before telephonically contacting the Licensing Division at (202) 622-2480 to inquire about the status of their application. Callers can use OFAC's automated license application status hotline (accessible through the 202-622-2480 number) to check on the status of their application. [10-08-13]

 

They said they had already applied for the license in the proxy statement back in November, and this says they could have been checking on this within two weeks, so I'm not sure if the three month delay is a bad sign or just a sign the Treasury is backed up.  Anyway, it the text in the proxy statement made it sound like the license wasn't definitely even required.  Their 25% shareholder, who's shares are not being cashed out, used to be more than 50% owned by a sanctioned person, but no longer is.  They are applying for the license just in case but it doesn't sound likely to fail.

 

Telcrest Investments Limited, a Cyprus company, which we refer to as Telcrest, currently holds approximately 25% of our outstanding common stock. On March 14, 2014, the Office of Foreign Assets Control, which we refer to as OFAC, of the U.S. Department of Treasury designated Bank Rossiya, which directly or indirectly owned more than 50% of Telcrest at such time, as a Specially Designated National and Blocked Person, which we refer to as an SDN, for purposes of U.S. economic sanctions related to the situation in Ukraine. Accordingly, Telcrest was also considered to be an SDN for purposes of U.S. sanctions at such time and, thereafter, the shares of our common stock held by Telcrest were identified by Computershare Trust Company, our transfer agent, which we refer to as Computershare, as blocked property pursuant to applicable sanctions associated with the SDN list of OFAC. Telcrest has since informed us that they are no longer owned, directly or indirectly, 50 percent or more in the aggregate by one or more SDNs, including Bank Rossiya, but we believe we still may not deal in the shares of our company held by Telcrest, and have therefore applied to OFAC for a license permitting us to effect the merger. In that application, we specified that in the merger these shares will not be cancelled in consideration of the cash merger consideration, but instead will remain outstanding.

 

In any case I added some more shares today at 1.82 because now it's looking like a minimum of a 9% return in hopefully a month.

[aws]

The license was received, payout early in Q2: https://www.sec.gov/Archives/edgar/data/1354513/000110465916108528/a16-7614_1ex99d1.htm

They are still guiding toward the lower end of 1.98-2.19, so there's at least a small expected gain with the current price of 1.96.  Not sure whether that's going to be 1% or more like 3-4%, but it's enough to keep holding through completion.  If they payout in a month the annualized yield will be 12 to 48%.

 

It's been a very nice investment overall.  I bought in at 1.85, sold out at 2, bought back in at 1.85, and hopefully will get 2 once more.  Two 8% returns within 4 months or so.