News Corp., Others May Be Near Deal on Kirch

From Bloomberg News

Rupert Murdoch's News Corp., Saudi Prince Alwaleed bin Talal and Italy's Mediaset are close to reaching a deal to buy up to 25% of debt-laden Kirch Group, Germany's second-largest media company, for about $2 billion, according to one of the prince's top advisors.

But sources close to News Corp. cautioned that major issues, such as determining the value of the Kirch assets, are unresolved and that the company has yet to complete a review of Kirch's financial statements.

A link-up with Kirch would create Europe's biggest TV alliance, taking in Italy, Germany, Spain and Britain. Murdoch and Mediaset would get a foothold in Germany's potentially lucrative market, Europe's largest with more than 33 million households owning televisions.

Word that the three parties might buy a stake in Kirch first surfaced in early August. Kirch is one of Europe's main TV companies, and is important to Hollywood because it is a significant buyer of TV rights for films made by the major studios.

The project would involve reorganizing Kirch and selling shares in the company, Tarak Ben Ammar, an advisor to Alwaleed and a Mediaset board member, said in an interview.

Mediaset is Italy's largest private broadcaster. A spokesman for Kirch declined to comment.

Alwaleed has frequently made investments in companies when they are being turned around, including Euro Disney (now Disneyland Paris), Apple Computer Inc. and Citicorp.

"They now have an opportunity to get in the market because of Kirch's financial weakness," said Laurent Carozzi, a media analyst at Paribas in London.

The privately held German company, which controls digital TV venture DF1, the SAT1 commercial channel and the DSF sports channel, has debts of about $1.8 billion, analysts said. Leo Kirch has conceded that DF1 has lost more than $800 million since it began broadcasting in 1996 and attracted only a quarter of the customers it expected.

Mediaset Chairman Fedele Confalonieri stressed that the alliance would focus on commercial TV financed by advertisement, rather than on pay television. If the alliance goes ahead, it will not be affected by plans of Telecom Italia, RAI and Murdoch to form a pay-TV venture in Italy, he said.

Alwaleed's role would be that of an investor, though the Murdoch-Kirch-Mediaset alliance could in the future cooperate with ART, the Arab satellite television venture in which the prince's Kingdom Holdings company owns 30%, Ben Ammar said.

"How often do you find an important group like Kirch that wants to open up to friendly shareholders?" Ben Ammar said. "This is a great investment opportunity."

Alwaleed, Murdoch and Mediaset, which is controlled by former Italian Prime Minister Silvio Berlusconi, have already decided to invest in the German company and are now discussing the financial details, Ben Ammar said. It's not clear how the Kirch stake would be distributed and through which company Murdoch would make the investment, he said.

Sources close to News Corp., however, said that no final decision has been made, and they added that the deal could unravel.

Murdoch's News Corp., which owns the Fox TV channel in the U.S., and controls British Sky Broadcasting, Britain's biggest pay-TV company, also has TV ventures in Asia.

For Murdoch, currently in the throes of buying Manchester United, the world's most profitable soccer club, this latest plan could allow him to tap Kirch's worldwide broadcasting rights for World Cup soccer. It could also strengthen his hand in negotiations to form a European "super league" of top clubs.

This is his latest effort to gain a beachhead in Germany after two aborted tries. BSkyB has formed separate TV alliances with both Kirch and Bertelsmann in the last three years only to have them collapse over disagreements on terms and strategy.

Times staff writer James Bates contributed to this report.

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