KirchGruppe merger falls apart

BSkyB investor Rupert Murdoch and Leo Kirch, head of KirchGruppe

The debt-burdened German media giant KirchGruppe has come under yet more pressure, after German television group ProSieben Sat 1 decided to postpone a planned merger deal.

The merger was designed to give KirchGruppe access to fresh capital, because ProSieben Sat 1 is already listed on the Frankfurt stock exchange.

But the board of ProSieben Sat 1 decided that the tie-up with broadcast rights arm KirchMedia - pencilled in for June - should be delayed to give KirchGruppe time to establish "a more solid financial profile".

Privately-held KirchGruppe already holds a 52.5% stake in ProSieben Sat 1, but only half the voting rights. When the news of the delay broke, the television group's share price surged 20%.

KirchGruppe is one of Europe's largest media conglomerates. Its debt burden, however, is estimated by some to amount to as much as 13bn euros.

The company is now beleagured on all fronts, and the empire built up by owner Leo Kirch could fall apart, its remains to be picked up by rivals.

Expensive sports rights

Difficult decisions ahead for Leo Kirch

Kirch Gruppe owns the television rights for Formula One, the football World Cups in 2002 and 2006, and controls the German language rights for a huge library of Hollywood films.

Kirch also owns the loss-making pay-TV channel Premiere and a string of other television ventures.

Its rapid expansion during the 1990s and acquiring the sports rights have brought KirchGruppe debts, but relatively poor revenues.

The firm now says that it is prepared to sell its Formula One broadcasting rights. It also hopes to find a buyer for its stakes in various media ventures in Spain and Italy.

Partners abandon Kirch

ProSieben Sat 1's reluctance to join up with Kirch does not come as a surprise.

Half the voting rights in the broadcaster are held by the Axel Springer publishing group, which recently shocked Kirch by invoking a so-called put option, which forces Kirch to buy back Springer's stake in ProSieben Sat 1 for 767m euros (£460m).

This triggered a cash crisis at Kirch.

KirchGruppe owns 40% of Axel Springer, but can not sell this stake as it is the security for a loan from Deutsche Bank.

Rupert Murdoch's News Corp, meanwhile, added to Kirch's woes by writing off its stake in the Premiere pay-TV channel.

Mr Murdoch has ruled out any further investment in Kirch, and invoked yet another put-option, which will force Kirch Gruppe to buy back Mr Murdoch's stake in Premiere - at the set price of 1.7bn euros, well above the channel's market value.

And several banks that provide loans to Kirch Gruppe have already gone on record that they will not continue to support the firm much longer.

Expansion plans fall apart

Leo Kirch made his fortune by buying up the German language television rights of many Hollywood movies during the 1960s and 1970s.

After deregulation of the broadcasting sector, he expanded into television, settting up his own free-to-air television station, and the Premiere pay-TV channel.

To attract customers, he bought expensive sports rights just at the height of the internet and media boom. His critics say that he was paying well over the odds.

German television viewers - accustomed to receiving between 10 and 30 free television channels on air or through cable - have been slow to sign up to the pay-TV channel.