Cyfra+/Wizja TV merge
By : Anna Kocinska
Canal+ Group and United Pan-Europe Communications (UPC) (http://www.upccorp.com) signed a long-anticipated agreement last week to merge Cyfra+ and Wizja TV, their respective digital platforms in Poland.
The new company, to be called Telewizyjna Korporacja Partycypacyjna (TKP), will be operated by Vivendi (http://www.vivendi.com)'s Canal+, which will own 75% of TKP. Under the deal, Amsterdam-based UPC, whose Polish operations include Wizja TV and cable network UPC Telewizja Kablowa, will turn all its Polish satellite assets over to TKP in exchange for a 25% stake in the merged entity and E150 million in cash. However, UPC will maintain 100% control of its cable network. The name of the new digital platform has yet to be decided.
While the merger is expected to streamline the companies' operations, it isn't expected to immediately solve their financial woes. "We are giving ourselves one year, up to 18 months, to break even, starting from the time when the Polish antimonopoly office (UOKiK) accepts the merger," said Christian Kozar, president of Canal+ Polska. Meanwhile, both parties will be required to fund the company until that happens. Kozar said liabilities and profits would be adjusted according to their stakes in TKP. "But financial burdens will be smaller now because the new platform will have more than 700,000 subscribers," he added. Bert Holtkamp, UPC's director of corporate communications, said that Canal+ and UPC will further fund the merged platform through a net cash injection of E120 million. "Canal+ will contribute E90 million and UPC will invest and can limit itself to to E30 million," he said.
Though market observers have been saying for the past two years that Poland's digital platforms have to merge to get out of debt, it seemed the negotiations between the two companies would never end. It was only until UPC recorded particularly bad financial results in July that negotiations were sped up. UPC's share price on the Amsterdam Stock Exchange last month dropped to a record low of E0.92. Last week it traded at E1.27. Frank Meijerhof, an analyst at Amsterdam-based Rabo Securities, said UPC's 25% stake in TKP is evidence of the company's weak negotiating position. But Przemyslaw Szmyt, a former chief executive officer of Wizja, said that given UPC's finances the deal was rational. "They decided to withdraw from something that is not their core business," Szmyt said. "If your share price is going to pieces, the only thing to do is to concentrate on your core business."
And cable is UPC's core business. UPC's networks in Europe link 10.8 million homes and deliver cable TV services to 7.2 million subscribers. Its Polish cable network, UPC Telewizja Kablowa, has 1 million subscribers. The company's digital platforms in Central Europe, including Wizja TV, had 466,000 subscribers by March 2001.
"(UPC) did let Wizja TV go, but instead they got 25% in equity and cash, which diminishes their budgetary gap," Szmyt said. "Please remember that its share price dropped below $1 and normally if that persists for a month, a company is threatened with delisting. So they had more important things to do (than sticking to digital TV in Poland)."
According to Holtkamp, UPC was not threatened with delisting because the company is floated on two stock exchanges: the U.S. Nasdaq and the Amsterdam Stock Exchange. "On the Nasdaq, where such delisting is possible, we have never gone below $1 and in Amsterdam there are no such rules," he said. Holtkamp added that UPC has resources to draw from until 2003. "We received E1 billion from Liberty Media at the end of May and we have a bank loan of E4 billion, of which we can still take E1.5 billion," he said. "UPC will become cash-flow positive in 2004." UPC's second-quarter results are to be released on Tuesday.
As for the future, Holtkamp said there would be no substantial layoffs at Wizja. "A number of people from Wizja TV will go to the merged company, whereas for others a transition plan will be developed," he said.
Canal+ Polska's Kozar said that changes as a result of the merger would not be massive. "We will need people from Wizja who know their customers, so for the moment there is no worry that they will have to look for a job," he said. "We just need time to see how it all works."
Subscribers of the two platforms also won't see much difference in everyday use of their decoders, Kozar said. "Technically speaking, subscribers of Wizja will be able to watch the best of Cyfra's sports programs and subscribers of Cyfra+ will have access to Wizja TV's programs," he said.
While Cyfra+'s programming is focused on films and sports, the companies said the future of movie channel Home Box Office (HBO) now available through digital platform Wizja TV will not become a bone of contention. "HBO will be available on the new platform like the Premium channel is available on Cyfra+ now," Kozar said. "As far as I know, both the DTH (direct-to-home) and cable systems will carry HBO," Holtkamp said.
