Rostelecom Forms Media JV with All-Russia State Television and Radio Broadcasting Company (VGTRK)

December 23, 2014

Rostelecom OJSC, Russia’s national telecommunications operator, today announces that its Board of Directors has approved a deal to create a media joint venture (“JV”) with the All-Russia State Television and Radio Broadcasting Company (“VGTRK”), Russia’s leading producer of pay-TV channels for cable and satellite broadcast. The JV will be made up of VGTRK’s Digital Television and Rostelecom’s subsidiary NKS-Media.

The main aim of the JV is to accelerate the development of the combined media assets in the field of production and distribution of semantic pay-TV channels for cable and satellite broadcast. The participation in creation of Russia`s leading producer of semantic pay-TV channels, together with one of the country`s largest media holdings VGTRK, will provide Rostelecom with access to an expertize of high-quality original content creation. In addition, this will also enable the company to benefit from economies of scale.

The deal is structured as follows:

• Digital Television will carry out an additional share issue by private subscription, with the proceeds going to Rostelecom;
• Rostelecom will acquire ordinary registered uncertified shares of Digital Television during its additional share issue and receive 25.33% of Digital Television’s voting shares. Rostelecom will pay for these shares using 100% of its equity interest in NKS-Media and RUB 250 million in cash.

Rostelecom’s assets contribution to the JV amounts to more than RUB 1 billion.

Sergey Kalugin, President of Rostelecom, commented: “We have considered a number of scenarios for the further development of our TV channels and have made the decision to consolidate them with VGTRK media assets, becoming a shareholder of the leading player on semantic pay-TV channels market. We believe they will generate greater value as part of a larger JV with VGTRK rather than attempting to develop our media business as a standalone entity. This will enable the combined company to obtain a much stronger position in the market, manage its costs more efficiently and enhance a leadership in quality of content.”

About the Joint Venture assets:

OJSC Digital Television and its subsidiaries (Digital Television Group) distribute 13 semantic TV channels of various genres such as “Russian Novel”, “Russian Bestseller”, “Russian Detective”, “My Planet”, “Science 2.0”, “Country”, “Dress”, “History”, “IQ HD”, “Mult”, as well as VGTRK’s channels “Sport”, “Sport 1”, “Fight Club”. The group is also planning to launch its new channel “Living Planet”.

LLC NKS-Media operates and distributes the following TV channels: “Mother and Child”, “24Techno”, “24 Doc”, “Scary HD”, “Real Scary TV” and “Amusement Park”, as well as the Ural Internet portal “u-mama.ru”, an information and entertainment website for parents.