Canal Plus OKs Asset Swap With Kirch

Canal Plus, Europe’s biggest pay television operator, said Wednesday that its board approved an asset swap plan with Kirch Group of Germany that could give it control of Italian pay television company Telepiu.

The Paris-based company said it should sign agreements on the sale of its 37.5% stake in Premiere, a German pay TV channel, to Kirch and the purchase of Kirch’s 45% stake in Telepiu “within a few days.” It said it will give more details on the terms at that time.

Taking control of Telepiu is key to Canal Plus’ European expansion strategy. It is the basis for its $2-billion acquisition of the Netherlands’ Nethold, an unprofitable pay television operator that has a 45% stake in Telepiu.

“With 20 million households, Italy has important potential,” said Walter Vejdovsky, an analyst at BNP Equities in Paris. “It’s a good short-term move. Canal Plus is limiting its risks while reducing its debt at the same time.”

The final announcement will end months of talks between Kirch and Canal Plus. In addition to reinforcing Canal Plus’ position in Italy, the exchange paves the way for Kirch and rival Bertelsmann to use Premiere to expand its digital television services in Germany.

Shares of Canal Plus have surged 12% since Friday when the company called its board meeting, fanning expectations an accord was imminent. They rose 0.17% on Wednesday.

Analysts said they expect Kirch to pay Canal Plus up to $172 million in cash in addition to its stake in Telepiu to account for the different valuation of the two stakes.

Premiere, created in 1991, counted 1.4 million subscribers at the end of 1996 and is expected to post its first profit this year. Telepiu, also created in 1991, had 800,000 subscribers at the end of 1996 and is not expected to break even until 1999.

Canal Plus has long wanted to withdraw from Germany’s television market, where, it says, a foreign company can’t compete successfully. A year ago, an alliance it formed with Bertelsmann and Rupert Murdoch’s British Sky Broadcasting collapsed. Twice since then, BSkyB has pulled out of other ventures.

Canal Plus is expected to benefit from a spate of new agreements between Germany’s biggest media companies, which have raised the price of its Premiere stake, analysts said. On Wednesday, Bertelsmann and Kirch signed a pact with Deutsche Telekom, the country’s dominant cable television operator, to provide digital TV in up to 25 million households.

Canal Plus has said it will also look to sell its 24.9% stake in German commercial channel Vox. Vox’s other shareholders include Bertelsmann and Rupert Murdoch’s News International.

Although the swap gives Canal Plus 90% of Telepiu’s capital, analysts said that the real negotiations for Canal Plus to cement its control of Italian pay television may have just begun.

Canal Plus is eager to bring local partners into Telepiu’s capital, and companies such as national telephone company Stet and national broadcaster RAI have jumped at the offer.

The Italian companies and government have been putting pressure on Canal Plus to keep its stake in Telepiu at less than 50% to place Telepiu under Italian control. Stet and RAI have even gone as far as threatening to start their own digital service if they don’t get their way.

“The market’s vision of this transaction could change quite rapidly if Canal Plus doesn’t manage to maintain majority control of Telepiu,” Vejdovsky said.

Digital television provides a sharper image than conventional television, more channels and interactive services, such as video-on-demand and Internet access.