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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Softechie who wrote (33300)	2/25/2002 8:44:14 PM
From: Softechie	Respond to of 99280

Kirch's Crisis Threatens to Ensnare Lehman Brothers, a Key Adviser By MATTHEW KARNITSCHNIG and ROBERT FRANK Staff Reporters of THE WALL STREET JOURNAL Kirch Group's growing financial crisis threatens to ensnare not only Germany's banking sector, but also a key U.S. adviser: Lehman Brothers Inc. The media group's German creditors are exposed to the bulk of its estimated eight billion euros ($7.00 billion) in debt, but Lehman, a Kirch Group adviser, lender and shareholder, could face difficulties if the company fails as well. "Lehman is fighting on too many fronts," said Markus Straub, head of Schutzgemeinschaft der Kleinaktionaere, a minority investor interest group. Most recently, Lehman has served as Kirch Group's adviser on a deal that company founder Leo Kirch had hoped would secure his empire's future -- the merger of Kirch Media, its film- and sports-rights trading arm, and ProSiebenSat.1 Media AG, its Frankfurt-listed broadcaster. The transaction, for which Kirch Group has also engaged J.P. Morgan, was postponed indefinitely last week amid investor opposition. Many industry observers predict the transaction will be canceled altogether, but Lehman is still trying to push the deal through. One reason could be that Lehman has more at stake than just a commission. The bank owns 2.48% of Kirch Media and 2.4% of Premiere, Kirch Group's unprofitable pay-television business. Both stakes are held by a subsidiary called Lehman Merchant Bankers. Two-thirds of the several hundred million dollars invested by Lehman in the businesses comes from outside sources. If the merger doesn't happen, Lehman could exercise a put option to sell back its Kirch Media stake to Kirch Group. The trouble is, Kirch Group doesn't have the money to buy back the stake and is already wilting under an estimated five billion euros in other liabilities. Lehman, which has a 250 million euro loan out to Kirch Group, could have difficulty recovering that money as well. The investment bank issued the credit to finance Kirch Group's $1.6 billion (1.83 billion euro) Formula One acquisition last year. The credit is secured in part by a secondary lien on Kirch Group's 40% stake in publisher Axel Springer Verlag AG, which is up for sale. The 250 million euro loan also is secured by a secondary lien valued at 485 million euros that will be divvied up between Lehman and two other banks that helped finance the Formula One deal, Bayerische Landesbank and J.P. Morgan . The details of the lien and what other collateral Lehman has for its credit aren't known, however. Lehman says it is "fully collateralized and comfortable with its position" on the Formula One loan. To be sure, it isn't uncommon for investment banks to have an equity stake in the companies they are advising, but analysts say Lehman's Kirch involvement goes beyond the norm. "I think this one's a little messy," says an analyst familiar with Kirch Group. "I can see why investors might raise questions." A Lehman representative said, "We are very careful in all of our relationships to ensure that no conflicts exist." The ProSiebenSat.1 merger isn't the first time Lehman has acted as an adviser to Kirch Group. In March 2001, six months before Kirch Group announced plans to merge ProSiebenSat.1 and Kirch Media, Lehman was the lead underwriter for a 400 million euro Eurobond issue for ProSiebenSat.1 along with Dresdner Kleinwort Wasserstein. A group of bondholders threatened to try to block the merger before last week's delay announcement over concern that Kirch Media's debt load would harm their investment. The value of the bonds dropped by about half after the merger was announced. The debt has recovered to about 70% of its original value in recent weeks amid speculation the deal would fail. The bondholders group, represented by London-based law firm Norton Rose, wants ProSiebenSat.1 to either give up the merger or redeem the notes in advance of the deal. One U.S.-based member of the group, who holds between 25 million euros and 50 million euros of ProSieben's debt, called on Lehman to recuse itself from the transaction because of its other ties to Kirch Group. "It's disturbing to us that Lehman is a shareholder in Kirch Media and Premiere," the investor said. Lehman, because of its advisory mandate and equity stake in Kirch Media, has a strategic interest in the merger going through that runs counter to those of the bondholders it helped sell the debt to, the investor said. Write to Matthew Karnitschnig at matthew.karnitschnig@wsj.com and Robert Frank at robert.frank@wsj.com Updated February 26, 2002