Troubles Mount for Kirch as Springer Exercises Option on ProSieben Stake

31 January 2002

Europe’s number one newspaper publisher Axel Springer Verlag has decided to exercise an option forcing Germany’s Kirch Gruppe to buy back an 11.5% stake in broadcaster ProSiebenSat.1 after all.

The decision puts enormous pressure on Kirch, whose E6 billion debts have left it short of cash. Under an agreement signed two years ago, Springer can demand a price of E767 million for the holding, even though in the current depressed market it is worth a mere E110m.

Reports earlier this week suggested Springer was unwilling to exercise the option [WAMN: 28-Jan-02]. However, talks between Springer chief executive Matthias Döpfner, Kirch vice-chairman Dieter Hahn and chairman Leo Kirch have reportedly failed to produce a compromise.

Struggling itself from the media downturn, Springer announced: “The management board has done what it could. From a financial point of view and from a legal point of view, there's no alternative.”

Insiders say that Kirch wanted to pay some of the fee in cash and the rest in holdings in TV unit Kirch Media, an offer Springer refused.

However, Kirch is not taking the decision lying down, issuing threats of court action against Springer. Two years ago when the agreement was made, the newspaper group chose not to register its dormant holdings (including the ProSieben stake) in order to save on tax. This, alleges Kirch, means there is now no contractual foundation for the option Springer wishes to exercise.

Despite such squabbles, the two groups are closely linked. Leo Kirch is the second largest investor in Springer, with a 40% stake, while Döpfner is chairman of ProSieben’s advisory board.

News source: Handelsblatt (Germany)