Mr. Solorz, the 100%-owner of Polsat, the second largest commercial TV station in Poland after TVN, has sold a 25% stake in his company to Bertelsmann television arm RTL Group for EUR 250-300m, according to unconfirmed information reported by today’s ‘Rzeczpospolita’ daily. Mr. Solorz has not given any more details regarding his plans on a further exchange listing of a minority stake in Polsat. It is also not clear, whether Mr. Solorz has sold existing stock in Polsat or the company would issue new shares for Bertelsmann. According to earlier news, the selling of up to 20% of capital to outside investors, including a stock exchange listing and placement for a selected media group, was planned for early 2007.
Our view: We view the news as negative for TVN, which has been increasing its audience share at Polsat’s expense lately, driven by the latter's lack of skill in programming. Now, we would expect a transfer of managerial, programming, and marketing skills to Polsat from Bertelsmann/RTL, resulting in strengthening its market position. It is also negative for TVN, because Mr. Solorz apparently sold the stake at a significant discount to TVN's current market valuation. Based on a 2005 P/E comparison with TVN, we estimate the size of the discount for Polsat stake in the transaction at 45-50%. We would expect a negative market reaction to the news today.