Debt-ridden Kirch forced to sell Formula 1

by Gordon MacMillan,, Brand Republic 20-Feb-02, 08:51

LONDON - Debt-ridden German media group Kirch is to sell the rights to Formula 1, as the company is broken up in a bid to stave off total collapse.

The company has debts of around £3.75bn and has been under pressure for weeks from its creditors to pay back around £1.5bn. The debts have been brought on as Kirch over-reached itself with loans as it tried to build a pay-TV empire in Germany. Kirch was recently urged by the German government to sell its stake in Formula 1 motor racing and in publisher Axel Springer in order to avoid a takeover by Rupert Murdoch.

The latest move is likely to open the way for Murdoch, who is owed £1bn by Kirch and has been threatening to exercise an option to force Kirch to buy back his 22% stake in ailing pay-TV business Premiere.

The German government is worried that if Kirch does not sell some of its assets quickly, Murdoch's News Corporation will swoop and launch a takeover bid.

It is being reported that chairman and founder Leo Kirch is now likely to offer Murdoch a substantial stake in his TV business KirchMedia to satisfy the debt.

Murdoch was recently reported to have hired auditors to value Kirch Group in case he decides to buy parts of the company, should it file for insolvency. The investigation is expected to be complete next week.

It is understood that bankers for Kirch will now start looking for buyers of its 58% in SLEC, which controls Formula 1. One buyer is thought to be Bernie Ecclestone, who formerly owned the business and effectively runs the business and TV side of Formula 1.

Ecclestone, who sold the business to Kirch for £1.2bn, could now buy it back for as little as £560m giving the canny entrepreneur a massive profit.

Kirch's problems were exacerbated by Axel Springer, which has been pressing an option that could force Kirch to pay out £462m it does not have. Kirch has been in talks with Springer for weeks about delaying the option on the publisher's 11.5% stake in Kirch's terrestrial TV station ProSiebenSat1. It is not known what role Springer plays in the latest developments.

Kirch also owns the TV rights to the World Cup in 2002 and 2006, which it bought from Fifa for £821m. Last year, it was embroiled in a long-running battle with the BBC and ITV as it tried to squeeze more money out of the UK broadcasters. Kirch wanted as much as £171m for the rights to the 2002 tournament, but ITV and the BBC, which have shared the tournament since 1966, refused to pay. In the end, the two paid £159.6m for the rights to the 2002 and 2006 tournaments.

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