Perfumier Lauder runs into trubble in Ukraine with CETV

Central European Media Enterprises Ltd. (CME) (NASDAQ/ Prague Stock Exchange: CETV) has TV interests in the Ukraine (Studio 1+1, Studio 1+1 International, Kino) is controlled by cosmetics heir Ronald Lauder. In an oral decision issued today, a district court in Kiev ruled that Igor Kolomoisky (43) , (see v. rare pic) owner of the conglomerate Privat including the Privat Bank, is entitled to the 70% interest in Studio 1+1 LLC which claimed to be held currently by Alexander Rodnyansky.

CME protests this ruling today its Ukrainian subsidiary Intermedia, which owns 30% of Studio 1+1 and is a party to the proceedings and sale from their offices in Hamilton Bermuda, they are going to appeal this decision.


Michael Garin, CME’s Chief Executive Officer, commented: “Today’s outcome is very disappointing, which is why we will appeal this decision. We have a longstanding binding agreement with our partners that we are entitled to a 60% interest in Studio 1+1 and they are entitled to a 40% interest. Alexander Rodnyansky is effectively a custodian of our interest until a previously agreed restructuring of the ownership of Studio 1+1 to reflect these ownership interests has been completed. Igor Kolomoisky has acknowledged this right in the course of the proceedings in Kiev. The 40% interest in Studio 1+1 is not the property of CME and we cannot compel the sale or transfer of it. Any transfer, however, can only be by legal means. Accordingly, we do not believe that any person can have a legitimate claim to a 70% interest in Studio 1+1. We are confident the government is committed to ensuring the interests of foreign investors in the Ukraine are protected.”

The ruling is similiar to problems CME faced in a 5 year legal struggle trying to gain control of its operations in the Czech Republic after using similar arrangements.

"The obvious risk in this situation is that Mr. Kolomoisky, if successful at the end of the legal process, decides and manages to walk away from the ... contractual agreements...Should this worst-case scenario materialise, the impact would obviously be negative for CME, as the Ukraine is a promising market for the company," said a JP Morgan analyst to Reuters and added. "However, especially if compared to the previous episode in the Czech Republic, the impact should be manageable."

It also shows what a rough tough world it is dealing with the rubble left behind the crumbling of the USSR empire. CMTV ended the day 1.5% down but are 6% up on the week.

As some background ...

It was the attempt by Yulia Timoshenko to transfer ownership of the Nikopol Ferroalloy Plant (NFP), the world's largest ferroalloy producer, to a group of people including the Igor Kolomoisky ( from Victor Pinchuk, son-in-law of the former Ukrainian president, Leonid Kuchma who had benefited from a supposed "privatisation" of state assets) which led directly to president and ex - colleague Yushchenko to dissolve his government in September 2005.

Igor Kolomoisky is a native of Dnipropetrovsk but sensibly maintains a base and a home in Switzerland but has interests in Israel (and has contacts with Nathan Sharansky) and is a major funder of a Ukraine Holocaust Memorial.He is on the supervisory boards of the largest companies controlled by Privat: Moscomprivatbank, Naftokhimprykarpattya, and Ukrnafta. The group controls metallurgical and ferroalloy plants and now holds monopoly positions on the national market of manganese ore. Its active assets include stakes in 5 ore mining and dressing factories (OMDF). The group runs ferroalloy production in Russia and Romania. Other big holders in the group are Gennadiy Bogolyubov and Alexei Martynov. Its total assets are said to be $1.5 Bn.

Author of remarks ...“You can get out of prison some day, but you can’t get out of a forest with your head cut off.”

“I told Pinchuk, ‘life is a supermarket. you can take whatever you like, but the cash desk is at the end’ ”

"In my opinion, if the authorities declare their commitment to the freedom of expression and other fundamental values, TV should be viewed as business, rather than politics. Nowadays, entertainment is an industry; ever more tycoons from this sector hit the lists of the world’s wealthiest people. They outshine carmakers, metallurgy and processing kings, etc. I believe in business diversification, in moving ahead and expanding. It is in this context that the purchase of the 1+1 Channel shares should be considered."

UPDATE THURSDAY

Not a good week for Ronnie, Estee Lauder reported sales up 5% yo US$1.6Bn in Q4 but net 9ncome fell from US$66 Mn to US$44Mn EPS down from 30 cents to 21 cents.. The shares fell 43 cents or 1.2%. No more Klimt's for a bit then.

Go here and here for more details of the Byzantine world of Ukrainian Business / Politics