CME’s $500 mil damages shakes up republic

Czech economy might go 'Nova'

PRAGUE — The fallout continues from Central European Media Enterprise’s surprise win in a Stockholm arbitration court, which freed it to seek $500 million damages from the Czech Republic.

The court ruled Sept. 14 the Czech government failed to protect CME’s investment in leading commercial station Nova, violating a Czech-Dutch investment treaty, after Vladimir Zelezny seized control of the station in 1999.

Bermuda-based CME’s subsidiary is based in the Netherlands.

“The judgment clearly stated that Zelezny’s behavior was criminal,” CME prexy and CEO Fred Klinkhammer said in a conference call to analysts and investors Sept. 19.

In Prague to brief the press a day earlier, he said the Czech Republic had become “a haven for a few individuals to get rich at the expense of the majority.”

The ruling is a setback for the cash-strapped republic. On Sept. 18, Czech Premier Milos Zerman said the republic was mulling an appeal.

Its reputation has hit an embarrassing low after its years as the darling of Western investors, and finding the money could seriously damage the country’s recovery from a three-year recession.

However, the government has agreed to release the 70-page ruling and was set to do so on Sept. 21.

The actual damages will be assessed by the arbitration court and could be finalized by early next year, per Klinkhammer.

The figure will rest on Nova’s value in 1999, when CME fired Zelezny from the helm of Nova’s operating company, CNTS. Zelezny maintained his influence in CET 21, a Czech company that holds Nova’s license. He cut off CME and relaunched Nova himself.

As a result, CME’s stock plunged, and a planned merger with rival SBS was scuppered. CME ran into financial trouble and was delisted from Nasdaq last year.

CME’s $500 million claim against the republic is based on “at least six third-party analyst reports which set the value at between $400 and $500 million at the time,” Klinkhammer said last week.

However, that figure could be upped by $60 million in interest.

There has been talk that the republic will try to buy CME off with another TV license.

“I will be glad to see some sort of rapprochement,” Klinkhammer said, referring to the possibility of being offered a national terrestrial license, but the return of Nova TV is “an impossibility today.”

“I would be very hard-pressed to put a half billion dollars at risk in this country again. I just don’t see that happening,” he concluded.

The ruling is even more surprising, after CME’s chairman Ronald Lauder, heir to the Estee Lauder cosmetics company, lost a similar arbitration in London earlier this month.

A defiant Zelezny continues to rule over a station that sees rising viewers and income. And he still hosts his weekly “Ask the Director” program, where he frequently condemns CME’s actions.

Reuters contributed to this report.

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