Kirch denies ProSieben sale rumours

BSkyB investor Rupert Murdoch and Leo Kirch, head of KirchGruppe

Germany's debt-burdened Kirch media group may have denied it, but rumours are continuing to spread that the ProSieben Sat1 broadcaster that it controls is up for sale.

The story, reported in the Financial Times Deutschland on Friday, has buoyed ProSieben shares, which rose 15% in early trading.

By 1310 GMT they had fallen back to a gain of 5% on the day.

The sale idea was gently downplayed by AOL Time Warner, one of a clutch of US media giants tipped as potential ProSieben bidders.

"That is not an area of our focus at the moment," AOL chairman Steve Case told reporters.

"There are solutions for the problems of this company that don't require our involvement."

But still observers feel that a sale of Kirch's 52.5% stake - either to AOL or to Walt Disney or Viacom - is a distinct possibility.

Best of a bad lot

The last thing Kirch wants to do is sell ProSieben, generally seen as a prime asset.

But bowed under the weight of debts totalling at least 6.5bn euros ($5.7bn; £4bn) and perhaps as much as twice that, Kirch is widely viewed as having little choice.

Media magnate Leo Kirch tried earlier this year to merge the broadcasting group with broadcast rights unit KirchMedia, a move which, given ProSieben's listed status, could have been used to inject much-needed fresh capital into his ailing empire.

But a complex web of cross-shareholdings put paid to that idea.

Putting the boot in

Half the voting rights in ProSieben are held by the Axel Springer publishing group.

Axel Springer can force Kirch to buy back these rights for 767m euros - a power now invoked.

This so-called "put option" in the original contract provoked a cash crisis at Kirch, which in turn owns 40% of Springer - a stake it cannot sell, since it has been pledged as security for a loan from Deutsche Bank.

Making life even more complicated, Rupert Murdoch's News Corp has its own put option for a stake in Kirch's Premiere cable channel. Mr Kirch may have to pay Mr Murdoch 1.7bn euros - much more than the stake is actually valued at these days.

Overstretched

KirchGruppe's huge debt burden is the end product of its strategy throughout the 1990s of buying up sports rights for events including Formula One motor racing and the 2002 and 2006 World Cups.

A massive back catalogue of German-language films have also been corralled for use on the Premiere pay-TV operation.

But the huge debts incurred in acquiring the rights is now hobbling the company - and Germans, accustomed to a plethora of free-to-air channels, have proved reluctant to sign up for pay-per-view, devastating revenues at Kirch.