CTC Media, Inc., Russia's leading independent media company, today announced that it has entered into a definitive agreement to sell a 75% interest in its operating businesses to UTV-Management LLC, an affiliate of UTH Russia ("UTH"), a leading private commercial television broadcaster in Russia, for $200 million in cash, subject to adjustment as described below. The transaction is being undertaken to ensure compliance with the foreign ownership restrictions imposed by Russia’s new Mass Media Law, while maximizing the potential return to the Company's stockholders. The Company had previously announced its receipt of a formal, non-binding offer from UTH on July 6, 2015.

The Board of Directors of CTC Media will recommend that the Company’s stockholders approve the transaction at a special meeting to be convened as soon as possible. The transaction is expected to close in late December 2015. MTG Russia, the Company’s largest stockholder, holding approximately 38% of the Company’s common stock, has indicated that it is prepared to support the transaction based on the terms of the agreement with UTH and the ability of the Company to return value to stockholders, all as described below.

Werner Klatten, an independent member of the Board of Directors of CTC Media and Chairman of the Special Committee of the Board, commented: "We are pleased to have reached agreement with UTH on the proposed sale of a controlling interest in our operating businesses. This agreement represents a significant achievement in light of the extremely challenging environment in which the Company is operating in Russia and the pending effectiveness of the Mass Media Law. Although it is unfortunate that Russian law will require that we effect a sale of the operating businesses, we believe that UTH will be a good new owner of the business and will be well positioned to build on the historical success of CTC Media as the first and leading commercial broadcasting network in Russia."

Yuliana Slashcheva, Chief Executive Officer of CTC Media, noted: "The sale agreement will enable the management team to focus on the business, with the issue of compliance with the Mass Media Law resolved. We operate in a very challenging market environment, but I am confident that as part of UTH our operating businesses will remain strongly positioned to build on our historical achievements as we continue to set new standards in media entertainment across Russia and Kazakhstan."

Return of Value to Stockholders

Following the closing of the sale of the 75% interest to UTH, the Board intends to return value in cash to the Company’s stockholders (other than Telcrest, for so long as it remains subject to sanctions). The Board is finalizing its plans in this regard, and expects to seek approval of a further transaction to effect such return of value in a proxy statement to be provided to stockholders in connection with the special meeting. Depending on the amount of consideration actually received in the transaction, which will reflect the operating performance of the business in the remainder of 2015 and other factors described below, the Board currently anticipates that the amount that will be available to stockholders (other than Telcrest, for so long as it remains subject to sanctions) would represent a low double-digit premium to the closing price of the Company’s common stock on the NASDAQ Stock Market on September 24, 2015, which was $1.89. The Board currently anticipates that a transaction to effect the return of value to Company stockholders will be completed in the first quarter of 2016.

Terms of the Transaction

Pursuant to the purchase agreement, CTC Media has agreed to sell a 75% interest in CTC Investments LLC ("CTC Investments"), the Company’s wholly-owned Russian subsidiary, which in turn directly or indirectly owns the group’s operating subsidiaries in Russia and Kazakhstan. In addition, the Company has agreed to approve the issuance by CTC Investments to UTH of an additional, new participation interest in CTC Investments following the closing of the transaction, resulting in UTH holding 80% of CTC Investments. Such additional interest would be issued to UTH by CTC Investments in consideration of a promissory note, and is intended to ensure that the ownership structure of the operating business fully meets the 80% ownership requirement of the Mass Media Law by the stated deadlines.

The ultimate purchase price will be net of any shortfall in cash flow from operating and investing activities during the second half of 2015 compared with the Company’s forecast for this period, and is subject to adjustment in connection with certain defined indemnification obligations. In addition, prior to closing the Company will receive all existing cash in the operating businesses, in excess of $15 million agreed to be retained for working capital post-closing. The Company currently expects that the amount of available cash from the operating businesses will be $55 million.

The transaction is subject to customary closing conditions, including regulatory approvals and the approval of the Company’s stockholders by a simple majority of the outstanding shares of common stock at a special meeting. The shares of the Company common stock held by Telcrest Investments, the holder of 25% of the Company’s common stock, are currently blocked pursuant to U.S. economic sanctions and as such Telcrest would not be permitted to vote at the special meeting. The Board intends to issue a proxy statement in respect of the special meeting as soon as possible.

Background

The Board of Directors of CTC Media has decided to approve and recommend the UTH transaction in the context of the pending effectiveness of amendments to the Russian law "On Mass Media". This law will, among other things, impose a requirement that at least 80% of the ownership interest in registered mass media in Russia, including television broadcasters, be beneficially owned and controlled by Russian persons or entities, effective January 1, 2016. The current ownership of the CTC group by CTC Media, a Delaware corporation that is now majority-owned by non-Russian entities, would not comply with the requirements of this new law.

As previously announced, the Board of Directors has undertaken an exhaustive process since the introduction of the Mass Media Law in the second half of 2014 to identify alternatives that would allow the Company to achieve compliance with the law while best safeguarding the interests of the Company’s stockholders. The Board has concluded that the only viable option is a divestment transaction. The Company and its financial advisors undertook a comprehensive formal auction process and subsequent one-on-one discussions with potentially interested buyers. The only viable offer received to date has been from UTH.