NEWS ANALYSIS: Financially strapped Kirch Group restructures
01/05/99 Deutsche Presse-Agentur
Copyright (c) 1999, dpa
By Jack Kindred, dpa
Munich (dpa) - Bavaria media mogul Leo Kirch, whose visionary concept of digital television's future has landed his media empire in financial hot water, is looking for well-heeled partners to take stakes in the privately-owned group.
The Kirch Group has reportedly lost 1.3 billion marks (783 million dollars) in its ill-fated pay TV digital platform DF 1, whose subscribers at year's end totalled some 270,000, hardly enough to pay operating costs.
Kirch also has outstanding commitments including 4 billion dollars for the digital rights to Hollywood films and another 2.2 billion dollars for World Cup soccer rights through 2006.
The Munich-based group has announced its long-awaited corporate restructuring, opening the way for financially strong new partners and an eventual float on the Frankfurt Stock Exchange.
Kirch has been negotiating for months with Italian TV entrepreneur Silvio Berlusconi, Australian media czar Rupert Murdoch and Saudi financier Prince Walid ibn Talal, in a bid to obtain new partners and financial support for his cash-strapped group.
Effective January 1, the Munich group's subsidiaries and partners have been realigned into three large holding companies, opening the way for shareholder participation.
Taurus Film GmbH will handle the group's core business, ad-financed TV, licensing, production and film processing.
A second unit, PayCo Holding Gmbh, combines the group's pay TV activities under the management of Markus Tellenbach, the former head of the commercial network Vox.
Taurus Beteiligungs GmbH will hold the group's 40 per cent stake in the Axel Springer Verlag publisher, as well as the group's participation in the decoder and sofware develpment company BetaResearch GmbH, Constantin's film distribution and production companies, and the group's video arm, Taurus Video GmbH.
The reoganization calls for Taurus Film to merge some time this year with the newly-founded Kirch Media KGaA, prior to a market launch. All three holdings are in the form of ''Kommanditgesellschaft'', a commercial partnership limited by shares.
As a trading company, Taurus Film will continue to acquire free and pay television rights under the chairmanship of Kirch himself, while the apparent designated successor to the 72 year-old film entrepreneur, Dieter Hahn, is vice chairman and like six other executives in various departments, is a managing director.
A report from the business information agency VWD said a decision on whether or not one or more partners would join the Kirch Group would probably made during the first quarter of this year.
''Very constructive talks are continuing,'' according to a Kirch spokesman, who would not say which partners were concerned. He also said the group at present had no concrete plans for a market launch and excluded a float during the current year.
But he stressed that the realignment would be in line for a market launch and open to own and foreign capital.
Unconfirmed reports have said the negotiators have so far failed to agree on the proposed tripartite alliance since Kirch has refused to yield control to Murdoch, who has the reputation of being reluctant to invest in any company without holding the upper hand.
There has been no indication as to the structure of the alliance, should it actually happen. Observers rule out, however, that any one participant, such as Murdoch, would be able to dominate it alone.
Nevertheless, an agreement with Murdoch, Berlusconi and Prince Walid would not only mean the end of Kirch's domination of his media empire, but also internationalization of Germany's television landscape, the largest and most lucrative TV market in Europe.
Its growth potential in the new electronic media is for financiers reason enough to invest in Germany's TV future. Up to now, Germany's broadcasters have been shy of opening the television door to Murdoch, who has been known to use his media power, as has Berlusconi, Italy's television magnate, for political manipulation.
Murdoch rescued Vox from liquidation a number of years ago by taking a major stake in the private broadcaster, but was unable to expand the network as he wished because of a contract clause enabling veto from the other shareholders.
If and when the Kirch Group actually goes public, it will have to reveal its financial situation in line with market transparency regulations. Till now, Kirch has been ultra-secretive in his business dealings, including disclosure of debts, which has frequently prompted far-out speculation as to the group's financial standing.
Kirch holds the rights to over 12,000 feature films and 85,000 hours of TV programs and sports, whose estimated worth is at least six billion dollars, the group's ace-in-the-hole as collateral for bank loans.
Copyright (c) 1999, dpa
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