[A-List] Germany: Kirch crisis

[Keaney Michael]

Kirch shareholders turn up the heat

John Hooper in Berlin
Thursday March 28, 2002
The Guardian

The prospective saviours of Leo Kirch's foundering media empire yesterday turned up the heat under Germany's bankers, politicians and the group's executives in what seemed to be an attempt to secure the best possible terms of entry.

Rupert Murdoch has joined forces with the Italian prime minister, Silvio Berlusconi, and other minority shareholders to try to take control of the Kirch conglomerate's core subsidiary, KirchMedia.

Amid reports that the banks were demanding that the minority investors join them in lending more cash to keep the Munich group afloat, Mr Berlusconi's Mediaset announced it was keeping its chequebook shut. Mediaset's president, Fedele Confalonieri, told a news conference in Milan: "We don't intend to put more money into this".

Mr Murdoch and his allies are in a strong position. Banking sources in Munich said the Kirch group, which is losing money through its pay-TV station, Premiere World, needs an immediate injection of about EUR200m (£123m) to save it from bankruptcy.

If the banks fail to come up with the money, they will seal the loss of 9,500 jobs and be faced with having to write off most of the EUR6.5bn they have lent Kirch.

This is an especially horrifying prospect for the biggest creditor bank, the Bayerische Landbank, which is half-owned by the Bavarian government. Edmund Stoiber, the head of the state government, is leading the right into September's general election and plans to focus his campaign on his job creation record in regional government.

A Kirch spokesman said: "We hope for a constructive resolution." He declined to comment on a report that the company might file for bankruptcy today unless emergency loans were made.

Banking sources in Munich said yesterday the stumbling block was not the reluctance of the minority shareholders to put up cash but their refusal to reveal their plans for KirchMedia's future.

The company plays a pivotal role in German life. It controls five free-to-air TV channels and has a minority stake in a sixth. It also owns Leo Kirch's vast stock of film rights and the rights to the 2002 and 2006 World Cups.

Chancellor Gerhard Schröder's spokesman yesterday gave a first hint that the government might yet become involved. Uwe-Karsten Heye said it was "not a player" at the moment, but added that it would "watch developments with great interest and, if reasons arise for it to take action, it will act. But that can't be foreseen at the moment".

Mounting losses at Premiere World and a downturn in group advertising have pushed Kirch to the brink of collapse.

In addition to its bank debts, it has short-term liabilities of several billion euros in the form of "put" options that allow investors, including BSkyB, to demand the repayment of investments after a given date. BSkyB's option can be exercised in October, giving it the power to destroy the group and any plans for a future not endorsed by Mr Murdoch.

Full article at:
http://www.guardian.co.uk/business/story/0,3604,675167,00.html

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney at mbs.fi