DECEMBER 8, 2001
Murdoch considers buying Kirch
Rupert Murdoch, the boss of News Corporation, is considering a bid to buy the entire Kirch Group. If that were to happen Murdoch would become the owner of the Formula One group of companies.
The problem with the deal is the amount of debt which is associated with Kirch and the continuing losses being incurred by the Kirch Pay-TV business which is estimated to be losing as much as $800m a year. Murdoch is more interested in the possibilities that exist for pay-television in the longer-term and exploiting the TV rights of Formula One might not be of much interest to him, which might open the way for a deal with the automobile manufacturers.
The possible takeover of Kirch will depend on whether or not Murdoch decides to exercise a put option on his 22% in the Premiere pay-TV business. That would cost Kirch $1.8bn. The entire group has vast debts which could run to $7bn or more but as the firm is privately held it is not clear exactly how much money is involved. Kirch Media, the division of the business which owns the F1 stake, has debts of $4.2bn.
The put option does not come into effect until October 2002 so Kirch has some time to figure out what to do next. One of the options is the planned merger between Kirch Media and the ProSiebenSAT1 companies which would enable Kirch to raise money by effectively floating Kirch Media (which controls the F1 business). Kirch would retain control of the business using voting shares but could sell the majority of the company to raise more cash. This would rid him of some of the debt and banks might be convinced to support Kirch more so he could afford to buy Murdoch out.
There are also political issues to be taken into account. Kirch has powerful friends in Germany and there could be moves to block a Murdoch takeover.
The rumors of a potential takeover deal could be an attempt by Murdoch to destabilize Kirch so that the value of the company will drop and banks will become increasingly worried about whether or not the German company can actually survive...
Such is the world of high finance.