Modern Times Group has called an Extraordinary General Meeting (EGM) for 07 February to vote on the distribution of all the shares in Nordic Entertainment (NENT Group) to MTG's shareholders. There will be a motion to allow the issue of B shares to fund acquisitions by MTG, particularly in gaming. However, MTG says it does not expect to pay dividends or buy back shares in the foreseeable future.
The boards of MTG and NENT have set new financial targets and dividend policies. MTG plans to allow the board to decide on the potential issue of Class B shares up to 20 percent of outstanding MTG B shares, in order to fund potential acquisition opportunities.
The NENT shares distribution is proposed via a Lex Asea distribution of all of NENT’s stock to MTG shareholders. Each MTG Class A share and MTG Class B share would entitle the holder to receive one NENT Group share of the same class.
NENT Group has two reporting segments, namely broadcasting and streaming on the one hand, and studios on the other. The former distributes TV and radio services to NENT’s own and third party networks. The latter creates, produces and distributes scripted, non-scripted and digital content for in-house and third party platforms.
NENT aims to deliver sustainable profitable growth in the form of organic sales growth and growth in total operating income before items affecting comparability, starting from 2020. NENT aims to keep a balance sheet leverage ratio of no more than two times net debt to trailing twelve-month adjusted EBITDA, or 2.5 times net debt when adjusted for leases. Leverage may exceed these levels temporarily from time to time, in order to finance acquisitions or amid short term effects, such as scheduling of content payments.
NENT’s policy is to distribute an annual cash dividend of between 30 percent and 50 percent of adjusted net income. The dividend for 2018 will be announced when it publishes its Q4 results. Its results for 2018 will not include the full run rate costs of being a separate and listed company, so the dividend may be at the low end of the range, as adjusted net income will be positively affected by lower costs.
NENT has obtained financing commitment from a bank consortium for a SEK 4.0 billion revolving credit facility for general corporate purposes. NENT also intends to arrange both a medium term note and a commercial paper programme. There will be no loans or derivatives outstanding between NENT Group and MTG after the listing date.
Following the split, MTG will primarily focus on electronic sports and online gaming, as well as stakes in entertainment companies including Nova Broadcasting and Zoomin.TV. MTG will have a net cash position immediately following the distribution of NENT and has funding in place to continue its standalone strategy, with the ability to draw on borrowing facilities occasionally.
MTG will invest its profits and cash flows in the development of its portfolio of holdings, and does not therefore expect to pay dividends or buy back shares in the foreseeable future. In addition, it proposes that the EGM authorises the board to be able to resolve on potential new share issues.
After the split, MTG will be financed with equity. MTG has secured a three-year, SEK 1.0 billion multi-currency revolving credit facility from Nordea. The facility is based on the cash flows generated from MTG’s 95 percent ownership in Nova Broadcasting Group in Bulgaria and, upon disposal of the asset in part or whole, must be immediately repaid.
Any new issue of shares may be done via a new issue with preferential rights to all shareholders and / or as a directed issue to one or more strategic investors. The aim is to enable it to raise capital on an accelerated basis, in order to pursue potential acquisition opportunities. Management foresees several attractive acquisition, particularly in online gaming.
