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Formula 1 waits for reactions as EM.TV shares dive

THE German media company EM.TV lost $3bn of its value in the course of share trading on Monday on Frankfurt's Neuer Markt exchange after it announced a correction to its half-year accounts. The shares dropped to from over 50 Euros to a low of 37 but recovered on Monday night to close at 39. They dropped again on Tuesday morning.

The announcement of accounting errors has no effect on the firm's earnings but the reaction triggered highlights the dissatisfaction that investors have towards the way the company is being run. The news means that there will be increased pressure on chief executive Thomas Haffa to get rid of his 50% in SLEC, the holding company of the Formula 1 group and concentrate on building up the firm's core business of merchandising cartoon characters.

The danger for Haffa is that the weakened share price will trigger a hostile takeover by a bigger media company wanting to get hold of EM.TV's extensive cartoon library which is much bigger than Walt Disney and AOL Time Warner combined. If that were to happen the F1 shares would probably be sold off to help pay for the acquisition. Alternatively, someone could buy the company to get hold of the F1 shareholding and sell off the cartoons to fund the purchase.

Haffa is in no real position to fight off a hostile bid as the company is already in considerable debt but to date the banks have stood by Haffa. Their reaction now will be important.

Waiting in the wings is a consortium of car manufacturers which are interested in buying Haffa out of F1. He has asked for $2bn for his shares but he is not going to get that given his weak financial situation as it would be easier for the car firms to buy the whole company and sell off the assets. One of the biggest problems for Haffa is that large chunks of the company are in the hands of individual shareholders, notably the Henson Family (former owners of The Muppets) and the Californian venture capital companies Hellman & Friedman and Morgan Grenfell. If they decide to get rid of their shares and sell them on the car companies, a hostile bid for the company could quickly come with Haffa and his family fighting over the smaller shareholders with whoever makes the bid.

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