HBO Divestiture Opportunity (DRAFT)
September [8], 2009
-- Confidential -- p. 2
Executive Summary
• SPE is recommending the sale of our 33.3% stake in HBO Central Europe (CE)
• Sale of a minority stake aligns with SPE’s increased focus on controlling stakes in our network investments
• We believe Time Warner’s desire to consolidate HBO CE makes this the right time to monetize our investment, receive cash of $78MM, and recognize a gain of approximately $39MM
– Presents an opportunity to exit a minority position at a full valuation– Time Warner is believed to have a “hand shake” deal to buy Disney’s stake in HBO CE; SPE’s options are to exit,
maintain position with little board leverage, or exercise our preemptive right to buy-up and maintain equal board representation with Time Warner
• Transaction would be structured to protect SPE’s ongoing operating relationship with HBO in Central Europe
• Sale of our HBO CE stake requires near-term approval and execution to close within FY10 assuming a 4-6 month regulatory review
• We are also in negotiations for a sale of all or a portion of our 29.4% stake in HBO Latin America; assuming agreement on key terms, we will separately review this transaction with the GEC
-- Confidential -- p. 3
HBO CE Background
[Need background on ownership, our original investment, distribution of our channels, licensing deals, etc.]
[Requested from Ross Hair]
-- Confidential -- p. 4
HBO CE: Gain, Cash, and Ongoing EBIT Impact
• Time Warner is believed to have a hand-shake deal to acquire Disney’s 33.3% stake in HBO CE on a $235MM valuation
• Sale of our HBO CE stake at this valuation would generate a gain of $39MM and cash of $78MM in FY10
Valuation Consideration Gain & Cash Consideration
($MM)
Valuation $235
SPE Interest Sold 33.3%
Proceeds from Sale $78
Book Value of Amount Sold $39
Gain $39
EBIT Impact ($MM) FY09 FY10 FY11 FY12
Current MRP $37.9 $3.1 $3.8 $4.5
If SoldOperations $37.9 $0.8 $0.0 $0.0Sale Proceeds $0.0 $39.0 $0.0 $0.0
Total $37.9 $39.8 $0.0 $0.0
Variance $0.0 $36.7 ($3.8) ($4.5)
FY10 MRP
FY10 impact assumes a December 31, 2009 close
-- Confidential -- p. 5
HBO CE Historical Returns
($MM)
Acquisition of Equity by SPE ($21.7)(FY99 - FY10)
SPE Share of Operational Funding ($4.1)(FY99)
Total Dividends Received by SPE $41.4(FY00 - FY10)
Sale to Time Warner $78.0(FY10)
Net Cash to Date $93.6
IRR TBD
[Requested timing of flows from Sukhi Arora to calculate IRR]
A sale of our HBO CE stake at the proposed valuation will provide an attractive return
-- Confidential -- p. 6
Protection of Ongoing HBO CE Relationships
Relationship• HBO distributes SPE channels in region
• HBO licenses [$XMM] of content from SPE annually
Key protections include:
• Extend our affiliate representation (currently through 4/1/10) by up to 8 years at our option
• Extend existing license agreements by up to 6 years at our option
Protections
-- Confidential -- p. 7
Preview of HBO Latin America Sale Opportunity
• HBO Latin America negotiations are in earlier stages; agreement on terms is expected to require 60-90 days
• We are weighing selling our entire 29.4% stake or selling down to a 10% stake• Sale could generate $130-$200MM in proceeds and $108-163MM of gain
Relationship• HBO distributes SPE channels in region
• HBO licenses ~$50MM of content from SPE annually
• SPE provides ad sales for HBO channels in Brazil
Potential Protections• If SPE retains an ownership interest
– Retain board seat with decreased governance
– Receive a put on remaining stake
• If SPE sells entire stake
– SPE will have a long-term contractual relationship for HBO to distribute our channels
Cash and Gain Structural Considerations
($MM) Retain 10% Full Sale
Valuation $680 $680
SPE Interest Sold 19.4% 29.4%
Proceeds from Sale $132 $200
Book Value of Amount Sold $24 $37
Gain $108 $163
-- Confidential -- p. 8
Next Steps
-- Confidential -- p. 9
Appendix
-- Confidential -- p. 10
HBO CE P&L
[Sukhi to Provide]
-- Confidential -- p. 11
HBO CE Valuation
[Need DCF and Comps to Validate Price]