01 Apr 2003

There are certain things that don't normally change in Europe - London buses are always red, Swiss clocks are forever on time and German media companies never fall into foreign hands. Well, while the buses and the clocks are safe for a while at least, the German media scene, it seems, is not.

A year after the collapse of the once all-powerful Kirch Group, it looks like its core broadcasting and programme library business Kirch Media is about to be sold to American media mogul Haim Saban.

Despite rumblings about Kirch remaining in the hands of its countrymen, Saban has teamed up with France's chief commercial broadcaster TF1 to do the kind of foreign ownership end-run that until recently would have been completely impossible.

The break-up of Kirch assets has been high on the media agenda since the empire began to unravel in late 2001. By early 2002 Kirch was tottering under too much debt with no relief in sight. At the same time, politicians of no less importance than German Chancellor Gerhard Schröder were discussing how to protect Kirch assets from non-German predators.

Schröder, along with the heads of Deutsche Bank (a major Kirch Group lender), media giant Bertelsmann (operator of the rival RTL commercial TV channels) and newspaper publisher WAZ Group, all agreed in early 2002 that Leo Kirch's empire could not be saved. But they wanted the pieces of the broken media giant to stay out of the hands of non-German investors.

The four were most concerned about Silvio Berlusconi and Rupert Murdoch.

Chancellor Schröder was particularly upset by the idea of his Italian counterpart adding German media to his domestic media assets. Now it looks like Saban may succeed where Murdoch and Berlusconi failed.

The deal discussed by the Schröder-favoured four to save Kirch Group fell apart after a number of creditor banks and the shareholders of Proseiben Sat 1 complained that they were being financially stitched up to serve a political solution. As the banks were unwilling to extend more credit, assets began to be sold. The rights to Formula 1 racing were put on the block in March 2002. The loss-making pay-TV business Premiere, which is seen by many observers as the burden that broke the back of Kirch Group, filed for insolvency a month later in April. By August, Premiere was on the auction block. By September, the World Cup 2006 rights were split off from the Kirch Group and sold.

A bidder for the core Kirch Media library and Proseiben Sat 1 broadcasting assets emerged in the form of publishers the Bauer Group, which had a toehold in broadcasting through a stake in RTL 2. The Bauer bid looked like the easy winner with the only possible fly in the ointment being an anti-trust concern over its stake in RTL 2. Bauer looked even better-positioned when in late 2002, Saban's approaches were rebuffed. But the Egyptian-born American was not easily deterred; he complained of being shut out of the bidding to both the US Embassy and to the local press.

By early 2003, the former owner of Fox Family had resurrected his bid and begun a full frontal attack.

Saban told a German magazine that he is the best person to run the Kirch library because he has been in the business for years and understands Hollywood much better than a German publishing group. Under pressure from Saban, Bauer bowed out last month, unwilling to take part in a bidding war with a price tag already over €2bn.

Meanwhile, the management of Prosieben Sat 1 began hinting that it should be part of any restructured Kirch Media - 40% of programming for Prosieben Sat 1's channels comes from Kirch Media which holds a 52% stake in the listed broadcaster.

Of course, Saban may jinx his own deal by trying to use a loophole in German takeover law to avoid buying out the minority Proseiben Sat 1 shareholders, thus saving himself and TF1 about €600m. But this could very well backfire.

Meanwhile, Premiere's new owners finalised their deal in February 2003 with a financial restructuring led by private equity group Permira. Armed with new funds, the long-suffering pay-TV company should be able to reach breakeven in the first quarter of 2004. Premiere CEO Georg Kofler has a 10% stake in the restructured company, while the Hollywood studios have all restructured their programme deals to give the company breathing room to turn the business around.

Overall, the Kirch empire collapse and restructure is complex, highly political and groundbreaking. And, if Saban actually gets his way, it will be interesting to see how the German media scene changes after the dust has settled.