Struggle for Czech TV Station Rages On

Czech Government Could be Embarrassed into ActionSometimes, it hurts to be Ronald Lauder.

And those investors who own debt in his Central European Media Enterprises, and who have been feeling his pain for about six months now, likely won't be getting relief any time soon, analysts say.

The vicious battle between Lauder and former Czech partner Vladimir Zelezny - a long-running personal and professional squabble that has progressed to a courtroom war for control of TV Nova, a Prague-based operation that was CME's shining star - has caused the company's outstanding bonds to plummet to their current distressed levels of about 35. They hovered in the 75 range in early August.

The bonds, which are rated at Caa1 and CCC-minus, are now seeing little fluctuation in price, and analysts do not expect much upside as the Lauder-Zelezny saga moves to its next phase, which isn't likely to result in a neatly-packaged made-for-TV ending.

Indeed, while the general consensus says that a final ruling from an International Chamber of Commerce tribunal in Amsterdam, likely to come in the next couple of months, will be in Lauder's favor, Zelezny could still prolong the case in court given his penchant for digging in his heels.

"The biggest fear is that you will get a ruling in favor of CME and not be able to implement it," said a London-based analyst familiar with the company. "That is what I worry about, that is what everyone is worried about."

However, at least one analyst believes that all of this is not entirely bad news, especially for buyers of distressed securities.

According to Michael Sonenshine of ING Barings' European high yield debt team, CME's assets outside the Czech Republic, a string of four stations in Romania, Slovenia, the Slovak Republic and the Ukraine, are undervalued.

Sonenshine values CME's non-Czech assets at roughly $100 million to $120 million based upon earnings potential and the projected savings a media company desiring a market presence would realize by buying an existing infrastructure instead of starting from the ground up.

"For CME bondholders so far all of this means that the company has practically no revenues from the Czech Republic and might never see revenues from Czech Republic." Sonenshine said. "That leaves CME holding only its other assets. I believe the value of the assets outside the Czech Republic is worth more than the present value of the bonds."

Bad Blood and Bad Press

The partnership between Lauder and Zelezny began out of necessity after the Czech government declared that the country's first two commercial broadcast licenses would be awarded to nationals only. Zelezny provided the license and ran the show, dominating Czech airwaves with such fare as Baywatch and Dallas reruns as well as local programming. Lauder provided the capital for TV Nova, which so far is the only profitable link in the CME chain, recently posting earnings of $55 million.

Following the partners' falling out, which ended with Lauder firing Zelezny last April, Zelezny retaliated by pulling the plug on the station, taking its program lineup and staff and starting his own operation.

The move not only cost Lauder in revenue, it resulted in derailing a planned acquisition by Luxembourg-based SBS Corp., which was set to buy CME last year for $615 million in stock.

Lauder has since done everything from filing lawsuits in Czech and international courts to running full-page ads in the New York Times and the Washington Post warning would-be Czech Republic investors. He even cornered Czech Prime Minister Milo Zeman in person to plead his case. Lauder is also personally suing the Czech government, asserting it is liable for $500 million, the portion of the aborted SBS/CME merger deal that Nova supposedly represented.

Fred Klinkhammer, CME's chief executive and primary spokesman, did not return phone calls by press time.

Concern for Appearances Could Quell Fear

While a preliminary injunction from the International Chamber of Commerce Court in Stockholm ordered Zelezny to restore Nova to Lauder while lawsuits between them proceed, Lauder has had little luck in convincing the Czech government to enforce the ruling. The Czech Media Council, which regulates TV and radio, effectively has said it has no power to enforce the injunction.

Moreover, Czech politicians are well known for being slow to cross Zelezny, a powerful broadcaster who has polished an image as a champion of the people and is not shy about using his power to influence the political landscape, sources said.

"He is one of the richest guys in Czech Republic and the politicians are scared of him," the London-based analyst said. They are not brave enough to anger him in any meaningful matter.