Euro station groups call off merger

Legal troubles plagued pact

The much ballyhooed $600 million merger between the two erstwhile rival Pan-Euro station groups SBS and CME has been called off.

A merger, originally announced in March, would have created one of the largest and most powerful station operations in Europe, with 18 stations spread across 12 countries reaching 150 million households.

The two companies, both U.S.-backed, publicly traded and chock-a-block with American programming, unveiled an agreement Tuesday to terminate their alliance because of legal difficulties CME is having in the Czech Republic.

Under terms of the agreement, SBS will pay CME a breakup fee of $8.25 million. In addition, both parties have agreed to accept a six-month non-compete clause, ending in March 2000.

As part of the breakup, SBS will buy most of CME’s Hungarian operations for $18 million, while CME will receive the option of buying an 80% stake in SBS’ Kanal A station in Slovenia for $12.3 million.

SBS chairman and CEO Harry Sloan said in a statement, “Terminating SBS’ agreement to acquire CME leaves us free to focus on radio expansion as well as multichannel and convergence opportunities in our current markets, including Scandinavia, the Benelux, Switzerland, Hungary and Italy.

“In these wealthier markets,” Sloan continued, “we have entered into a number of important strategic relationships and are actively pursuing a vertical expansion strategy.”

Despite the failure of the merger, SBS can still bank on its highly successful radio and TV stations in western Europe and on its new alliance with United Pan Europe Communications for the development of joint theme channels and Internet-related ventures, again in western Europe.

On the other hand, taking over CME’s Hungarian station suggests that SBS also wants to continue making inroads in eastern Europe.

In fact, SBS apparently plans to bid on yet another TV license, this time in Bulgaria, on Thursday.

For CME, on the other hand, the future alone does not look so bright.

Founded by cosmetics heir Ronald Lauder after communism fell, the group earlier this month shut down its Czech business, its most profitable, after a legal tussle with its feisty station head Vladimir Zelezny.

The decision came after it lost a fight with Zelezny for TV Nova, which CME helped build into the country’s most popular station.

CME’s Nova, once Eastern Europe’s most successful private station, suspended operations and dismissed 215 employees from its Czech unit, CNTS, two months ago. That’s when word spread that the merger with SBS was on shaky ground.

Fred Klinkhammer, president and chief executive officer of CME, said in a statement, “The hijacking of our Czech business by Vladimir Zelezny and the Czech Media Council’s and police force’s failures to enforce the rule of law and protect foreign investors from this kind of frontier behavior has destroyed the ability of the shareholders of both companies to fairly assess the value of CME now or in the predictable future.”

Klinkhammer added that CME will continue to pursue all legal remedies available to seek restoration and compensatory damages from Zelezny.

CME stock was unchanged Tuesday, closing at $2.22. SBS closed up $1.06 at $39.13. Both are traded on the NASDAQ.