Investors to Provide Kirch Money to Expand

Media giant Kirch Group on Monday announced investments of nearly $650 million by Italy’s Fininvest and Saudi Prince Al Waleed bin Talal that will create a television joint venture and commit the debt-laden empire of magnate Leo Kirch to an initial public stock offering within three years.

The long-awaited deal--aimed at providing Kirch with the cash to stay competitive in commercial and public television--gives 3.2% stakes in the group’s subsidiary, Kirch Media, to each of the investors. The deal will provide about $420 million for expanding the profitable television and film production and marketing activities of the Munich-area conglomerate.

The cost of the shares was determined on the basis of a $6.5-billion valuation of Kirch Media, one of three corporate groupings under a family-owned foundation, said Dieter Hahn, Kirch managing director.

“The investment is in our free TV and trade operations--not in pay-TV,” said Hahn, referring to the heavily indebted Kirch Pay-TV branch of the empire spun off in January in hopes of making Kirch Media more attractive to investors.

Kirch and Mediaset, the broadcast and marketing activities of former Italian Prime Minister Silvio Berlusconi under the Fininvest holding company, also disclosed plans at a Munich news conference to jointly create a new European television production and distribution network. That venture, called Eureka, will pair Kirch’s vast film and television operations with Mediaset’s dominant sales and advertising unit, PubliEurope, combining the strengths of the two industry giants.

Kirch’s commercial film and television distribution unit, Betafilm, is the biggest outside the U.S. It was bolstered in part by a Hollywood shopping spree in 1996, when Kirch bought up as much as $10 billion in blockbuster films and entertainment. The company also owns exclusive rights to broadcast the 2002 and 2006 World Cup soccer championships.

Under the separate joint-venture agreement, Mediaset will pay Kirch about $180 million to compensate for the difference in value of the assets each is contributing to Eureka.

A third aspect of the investment plan involves Kirch and Mediaset establishing a European Television Network that will acquire stakes in existing Kirch and Mediaset operations.

Australian Rupert Murdoch’s News Corp. also had taken part in the negotiations with Kirch and Mediaset until a month ago and was said to still be welcome to propose taking a stake in the operations, “although we are not exactly looking for new short-term ventures,” Hahn said.

The agreements commit Kirch to offer at least a 20% stake in Kirch Media on the stock market within three years to provide the investors with an “exit strategy,” said Hahn, who valued the agreements at about $647 million.

Kirch has long dominated public and commercial television in Germany and much of Central Europe, but the group’s heavy investment to develop pay-TV has left it with debts estimated at $1.6 billion.

Hahn also disclosed in a telephone interview from company headquarters in the Munich suburb of Ismaning that some relief for the DF1 pay channel is on the horizon.

Kirch intends to buy a 95% stake in rival Bertelsmann’s Premiere pay-TV channel with “outside financing,” combining DF1’s meager 300,000 subscribers with the 1.6 million of Premiere. An earlier agreement between the two media empires to jointly develop pay-TV was nixed by the European Union’s commission on competition as well as by the German Cartel Office because of fears the two would conspire to control free public television as well.

Industry sources estimate the cost of buying out Bertelsmann at about $950 million, although Hahn declined to confirm those figures.