Murdoch In ‘Make Or Break’ Talks Over Kirch

The FT this morning reports that talks are being held today between Rupert Murdoch and key News Corp TV executives regarding the company’s position on troubled German broadcaster Kirch. BSkyB holds a 22% share in Kirch’s pay TV operation and decisions must be made on the future of this arrangement and the put option BSkyB holds against Kirch regarding the stake.

Kirch Gruppe currently has debts of around E5.6bn ($4.9bn) and ‘contingent liabilities’ worth at least E2.3bn. Much of the debt is in short-term bank loans, half of which will be due this year but a more immediate threat comes in the shape of a E767m put option exercised last week by Axel Springer. This move forces Kirch to buy back Axel Springer’s 11.5% stake in Kirch’s free TV arm, ProSiebenSAT.1 by April.

Even this is pales beside the E1.6bn put option held by Rupert Murdoch against Premiere, Kirch’s loss-making pay-TV operation. A decision by News Corp to enforce the put option would almost certainly bankrupt Kirch, meaning that News Corp would then have to negotiate with the banks in order to receive payment for its stake.

An alternative would be to take control of Kirch TV in order to try and turn the company’s fortunes around. Taking things a step further it is also thought that Murdoch will attempt to take control of the whole group, a proposal opposed by German politicians who feel that the company should remain a ‘national’ concern and are not willing to cede control of the broadcast network to Murdoch. The other choice, of course, would be for News Corp to write off the debt and walk away from the problem.

Minority shareholders in KirchMedia, the largest subsidiary of the group, are thought to favour an assets sell-off – Kirch’s assets include a healthy sports-rights division which owns the rights to the World Cup amongst other events – in order to satisfy creditors.

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