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FEBRUARY 12, 2002

Kirch begins sell-off

THE KIRCH GROUP, the troubled commercial rights holder of the Formula One group of companies, has begun selling off its assets in an effort to avoid being taken over by a bigger media company. Kirch is selling its 40% stake in publishing company to the Hypovereinsbank for a rumored $880m. To date Kirch has always said that the Springer shareholding was not for sale but Kirch wants a quick sale to get money to pay off some of its $5bn of debt.

Kirch is also discussing selling its shareholding in the Formula One group. This is a worthless investment unless the company can win the support of the F1 teams and so the only likely buyer is a company with links in the business.

Kirch owes money to a lot of German banks including the giant Deutsche Bank and Dresdner Bank (which is owned by Allianz). Deutsche Bank, incidentally owns a percentage of Allianz and so is doubly exposed if Kirch fails to pay his debts.

One possible deal is that Deutsche Bank could take over the F1 shares. The bank has vast holdings including shareholdings in Boeing and RJ Reynolds. It is the biggest shareholder in DaimlerChrysler and the owner of the Arrows F1 team.

It is not impossible that the bank would see the F1 shares as a good swap for Kirch debts. The company has lost millions in its previous investments in the sport (via Morgan Grenfell Private Equity) but may see a deal with Kirch as a way to recoup some of those losses, particularly in light of the fact that it would bring the commercial rights to F1 for 100 years and might also be able to with the car manufacturers - which Kirch does not appear to be able to do.

It is probably just a coincidence but in October the bank's president Josef Ackermann and several other directors visited Ferrari boss Luca di Montzemolo and were even allowed to try out Ferrari and Maserati products on the Fiorano test track and were given a tour the Maranello factory. This all happened just a few weeks before the announcement that the car manufacturers (led by Ferrari) established GPWC Holding with the aim of establishing a new World Championship.