Deal Overview July 2013

Transcription

1 Deal Overview July 2013

2 Executive Summary SPT Networks has an opportunity to acquire Chellomedia s (a subsidiary of Liberty Global) operating business unit in the Latin America region, Chello Latin America ( Chello LatAm ) Chellomedia ( Chello ) is currently running a sale process for the entire business with initial non-binding indications of interest due by July 18, 2013 We believe Chellomedia s valuation is in the range of $822mm to $998mm, representing a 8.9x to 10.8x CY2012A EBTIDA multiple and 8.5x to 10.4x CY2013E EBITDA multiple While Chellomedia represents an attractive asset, Chello LatAm represents the best strategic fit into SPT Networks current portfolio Chello LatAm provides an opportunity for SPT Networks to expand its presence in the high-growth Latin American Pay TV and ad sales market and realize significant synergies Expand SPT Networks distribution and reach, through ownership of Chello LatAm s 10 portfolio channels with approximately 106mm subs in key countries in Latin America such as Argentina, Brazil and Mexico Chello LatAm will enable us to recapture control of affiliate distribution from HBO, allowing us to better capitalize on the growing LatAm and Brazil Pay TV market Cross promote channels to drive viewership and ad sales Opportunities to utilize SPE s content library across Chello LatAm channels Capture significant cost synergies (staff, marketing, G&A, up-link, etc.) SPT Networks proposes to submit a preliminary and non-binding indication of interest, subject to due diligence, of $150mm for Chello LatAm, representing a 11.8x CY2012A EBITDA multiple and 9.6x CY 2013E multiple Based on high level financial information and a proposed $150mm purchase price, the Chello LatAm acquisition has a deepwater mark of ($148)mm, NPV of $14mm and IRR of 20.8% before synergies With preliminary synergies assumed at 10% of cash flow, the Chello LatAm acquisition has a deepwater mark of ($148)mm, NPV of $31mm and IRR of 24.0% after synergies

3 Chellomedia Overview Business Description One of the largest producers and distributors of thematic Pay TV channels globally with a significant majority of revenues generated from subscriptions, and the remainder from advertising, ad space resale and services 65 (1) channels across six genres, 56 of which are 100% owned and 19 are joint ventures Distributes channels in 138 countries and in over 25 languages reaching approximately 394mm subscribers Content in popular genres of movies, entertainment, sports, children s, lifestyle and factual Revenue Breakdown (2) Revenue By Genre Revenue By Type Revenue By Country (1) As per Chello internal channel count; does not include channels held through associate investments (e.g. Disney XD-Poland, ShortsTV and OBN). (2) As of April 30, 2013 YTD.

4 Diversified International Business Units (US$ millions) (1) As per Chello internal channel count; does not include channels held through associate investments (e.g., Disney XD-Poland, ShortsTV and OBN). (2) Owned channels defined as 100% owned as of April 30, (3) As of April 30, (4) Represent full-time employees and excludes employees in central role. Pro forma 2013E. (5) Subscribers relate to MGM Netherlands, Weer, and Verkeer (JV with MeteoConsult). (6) Includes employees related to Chello Central Europe At Media business.

5 Chello LatAm Overview Overview (1) Summary Financials (US$mm) The overall Latin America Pay TV and ad spending market is projected to grow at a CAGR of 13% and 9%, respectively, from 2013 to CAGR: 11% Revenue CAGR: 8% Portfolio of 10 channels, including MGM Latin America, the popular El Gourmet food channel, Film&Arts, and the lifestyle Cosmopolitan TV channel Top 5 channels expected to account for over 80% of CY13E revenue CAGR: 18% EBITDA CAGR: 16% Subscription revenues accounted for the 85% of the total revenues, followed by advertising, which accounted for 14%(2) Projects subscription revenue growth CAGR of 8% from 2013 to 2018 Revenue Breakdown (1)(2) Revenue By Genre Revenue By Country Total of ~106 million subs as of April 2013, representing a 13% growth from CYE 11 Channels are distributed by all the major operators within the relevant regions and also has a small presence of ~400k subscribers in the US through its Spanish-language channel, Ella Note: Figures assume exchange rate of 1.3x to USD. (1) All data as of or for April 2013A YTD. (2) Pre eliminations.

6 Chello LatAm Strategic Acquisition Rationale Distribution Channel Portfolio Ad Sales SPT Networks will have independent distribution and direct engagement with affiliates; reducing our reliance on 3rd parties Bundling options in distribution discussions. Ex. Increase Spin carriage by bundling Spin along with Chello channels Expand our channel portfolio by offering content across 5 of the 6 major genres (1) SPT Networks can create channel bundles (i.e., movie) and increase our purchasing leverage when buying for multiple channels Genre Entertainment Movies Lifestyle Sports Factual Sony Pictures Chello LatAm Expand ad sales offering by building scale in the region Bundling of ad sales to drive higher revenue Children s Total (2) Combined Local Production Continue to produce original localized in-house content through El Gourmet s studio in Argentina Utilize production facility to develop our own content to air on our channels Additional Opportunities Utilize Sony s extensive content library across Chello s portfolio of channels Strong local presence in Argentina minimizes potential market challenges i.e., political instability and expropriation risk Capture significant cost synergies including overlap on staff, marketing, play-out, programming, G&A etc. (1) Will examine selling off channel assets with limited strategic fit (e.g., Canal A ) (2) Assumes 3 distinct linear channels, SET, AXN and Spin, for SPT Networks. MGM has an HD feed which is not a simulcast but has a different programming schedule

7 Chello LatAm Channel Portfolio Strategy (1) As of April 30, 2013.

8 Chello LatAm Preliminary Valuation (US$ in millions) SPT Networks estimates a preliminary enterprise value range of $129mm $152mm before synergies based on Chellomedia financial projections and by equally weighting the DCF and trading multiples valuation methodologies The valuation implies 9.6x 11.3x FY13 EBITDA and 7.9x 9.3x FY14 EBITDA The valuation is pre-diligence and gives full credit to Chellomedia s projections Preliminary estimate of synergies of 10% of cash flow increases the upper range to an average of $169mm We recommend extending a non-binding offer of $150mm for Chello LatAm, representing 11.8x CY 2012 EBITDA and 9.6x CY 2013 EBITDA METHODOLOGY IMPLIED ENTERPRISE VALUE COMMENTS Low View: $129 High View: $169 DCF - Exit Multiple $130 $165 $185 WACC Range: 17.0% % Terminal Multiple: 6.0x - 8.0x DCF - Perpetuity Growth $136 $162 $180 WACC Range: 17.0% % Perpetuity Growth: 6.5% - 7.5% Trading Multiples - FY14E EBITDA $131 $147 $162 Trading Multiple of FY14E EBITDA Range: 8.0x - 9.0x including a 25% Equity Control Premium Trading Multiples - FY13A EBITDA $121 $135 $148 Trading Multiple of FY13A EBITDA Range: 9.0x x including a 25% Equity Control Premium $80 $100 $120 $140 $160 $180 $200 Enterprise Value Note: Figures assume exchange rate of 1.3x to USD. Fiscal year financials assume 75% of prior calendar year and 25% of current calendar year. Also note that the low view is based on the preliminary valuation prior to synergies and the high view is based on the preliminary valuation with synergies. Incremental value from synergies

9 Chello LatAm Returns Analysis (without Synergies) (US$ in millions) Fiscal Year End March 31, Q4 2014E 2015E 2016E 2017E 2018E 2019E Revenue $15.7 $67.8 $74.6 $81.3 $87.9 $94.8 EBITDA $4.1 $19.2 $22.2 $25.7 $29.7 $33.8 Less: Depreciation and Amortization (1) (0.2) (0.7) (0.7) (0.8) (0.9) (0.9) EBIT (before PPA) $3.9 $18.6 $21.5 $24.9 $28.8 $32.9 Less: PPA (3.3) (12.3) (9.2) (6.9) (4.2) (4.2) EBIT (after PPA) $0.6 $6.3 $12.3 $18.0 $24.6 $28.7 Less: Taxes (0.2) (1.5) (3.1) (5.3) (7.2) (8.2) EBIT after Taxes $0.4 $4.8 $9.2 $12.7 $17.4 $20.5 Less: Change in Working Capital (1.3) (2.8) (3.3) (2.4) (1.9) (1.8) Less: Capital Expenditures (0.7) (4.3) (1.2) (1.2) (1.4) (1.2) Plus: Depreciation and Amortization Plus: PPA SPT Networks Free Cash Flows $1.9 $10.6 $14.7 $16.7 $19.2 $22.6 Cumulative SPT Networks Cash Flows SPT Networks Investment (150.0) Terminal Value (7.0x EBITDA) SPT Networks Cash Flow (incl. Terminal Value) (148.1) SPT Networks Cumulative Cash Flow (incl. Terminal Value) (148.1) (137.5) (122.8) (106.1) (86.9) EBIT to SPT Networks before PPA $3.9 $18.6 $21.5 $24.9 $28.8 $32.9 Less: PPA (2) (3.3) (12.3) (9.2) (6.9) (4.2) (4.2) EBIT to SPT Networks after PPA $0.6 $6.3 $12.3 $18.0 $24.6 $28.7 Low Offer High Purchase Price $129.5 $150.0 $152.1 NPV of SPT Networks Cash Flows $53.0 $54.1 $54.2 SPT Networks Investment (129.5) (150.0) (152.1) NPV of Terminal Value Total NPV $33.5 $14.1 $12.1 IRR 25.3% 20.8% 20.4% DWM ($127.7) ($148.1) ($150.2) WACC 17.5% 17.5% 17.5% Note: Figures assume exchange rate of 1.3x to USD. Assumes transaction as of 12/31/13. Fiscal year financials assume 75% of prior calendar year and 25% of current calendar year. (1) Assumes depreciation & amortization is 1% of revenue. (2) Assumes 40% of the purchase price attributed to intangibles. 70% of the intangibles value is attributed to affiliate relationships and amortized over 10 years (straight-line), 20% is attributed to programming and amortized over 3 years (50%/30%/20%) and 10% is attributed to advertiser relationships and amortized over 3 years (50%/30%/20%).

10 Chello LatAm Returns Analysis (w/ Synergies) (US$ in millions) Assumes 10% synergies to cash flow Fiscal Year End March 31, Q4 2014E 2015E 2016E 2017E 2018E 2019E Revenue $15.7 $67.8 $74.6 $81.3 $87.9 $94.8 EBITDA $4.1 $19.2 $22.2 $25.7 $29.7 $33.8 Plus: Synergies EBITDA (incl. Synergies) $4.5 $21.2 $24.4 $28.2 $32.6 $37.2 Less: Depreciation and Amortization (1) (0.2) (0.7) (0.7) (0.8) (0.9) (0.9) EBIT (before PPA) $4.3 $20.5 $23.7 $27.4 $31.8 $36.2 Less: PPA (3.3) (12.3) (9.2) (6.9) (4.2) (4.2) EBIT (after PPA) $1.0 $8.2 $14.5 $20.5 $27.6 $32.0 Less: Taxes (0.3) (1.9) (3.6) (6.0) (8.1) (9.1) EBIT after Taxes $0.7 $6.2 $10.9 $14.5 $19.5 $22.9 Less: Change in Working Capital (1.3) (2.8) (3.3) (2.4) (1.9) (1.8) Less: Capital Expenditures (0.7) (4.3) (1.2) (1.2) (1.4) (1.2) Plus: Depreciation and Amortization Plus: PPA SPT Networks Free Cash Flows $2.2 $12.1 $16.3 $18.5 $21.3 $25.1 Cumulative SPT Networks Cash Flows SPT Networks Investment (150.0) Terminal Value (7.0x EBITDA) SPT Networks Cash Flow (incl. Terminal Value) (147.8) SPT Networks Cumulative Cash Flow (incl. Terminal Value) (147.8) (135.7) (119.4) (100.8) (79.5) EBIT to SPT Networks before PPA $4.3 $20.5 $23.7 $27.4 $31.8 $36.2 Less: PPA (2) (3.3) (12.3) (9.2) (6.9) (4.2) (4.2) EBIT to SPT Networks after PPA $1.0 $8.2 $14.5 $20.5 $27.6 $32.0 Low Offer High Purchase Price $144.2 $150.0 $168.7 NPV of SPT Networks Cash Flows $60.1 $60.4 $61.3 SPT Networks Investment (144.2) (150.0) (168.7) NPV of Terminal Value Total NPV $36.8 $31.4 $13.7 IRR 25.2% 24.0% 20.5% DWM ($142.1) ($147.8) ($166.4) WACC 17.5% 17.5% 17.5% Note: Figures assume exchange rate of 1.3x to USD. Assumes transaction as of 12/31/13. Fiscal year financials assume 75% of prior calendar year and 25% of current calendar year. (1) Assumes depreciation & amortization is 1% of revenue. (2) Assumes 40% of the purchase price attributed to intangibles. 70% of the intangibles value is attributed to affiliate relationships and amortized over 10 years (straight-line), 20% is attributed to programming and amortized over 3 years (50%/30%/20%) and 10% is attributed to advertiser relationships and amortized over 3 years (50%/30%/20%).