Kirch Group of Germany Gains EM.TV Formula One Racing Events

Germany’s Kirch Group intervened Wednesday after months of haggling to rescue one of Germany’s former “new-economy” shooting stars, EM.TV & Merchandising, and secure the coveted rights to Formula One racing events for Kirch’s cable sports networks.

Under a deal struck Wednesday, Kirch agreed to pay $550 million for half of EM.TV’s Formula One holdings and for 25% of EM.TV itself, according to the struggling German entertainment company.

EM.TV, which owns tens of thousands of hours of children’s programming as well as the Jim Henson Co. of Muppets fame, has been closely followed by children’s programming circles in Los Angeles since last year, when it had two high-visibility acquisitions at what industry executives considered very rich prices.

EM.TV beat out Walt Disney Co. and Viacom Inc. for Jim Henson, although those suitors may have another chance should EM.TV be forced to sell more assets.

After a year that saw its shares soar to a high of more than $100 and then collapse to $4, EM.TV has been teetering near bankruptcy under the weight of $2 billion in debt, according to sources.

The company used its high-valued currency last year to buy Jim Henson in a stock and cash deal valued at nearly $1 billion by the time it was completed. EM.TV also acquired 50% of the Formula One auto racing organization for about $1.6 billion.

But undisclosed to investors was an agreement under which Formula One’s Bernie Ecclestone could force EM.TV’s chief executive, Thomas Haffa, to buy an additional 25% in his company for $1 billion. Sources said the threat that Ecclestone would exercise the option has backed EM.TV against the wall.

It is unclear whether Kirch has agreed to pay off Ecclestone as part of Wednesday’s deal with EM.TV.

Some industry analysts speculate that Kirch could force EM.TV to sell the Jim Henson assets to meet that obligation. Kirch is interested in Formula One racing to prop up its ailing pay television service in Germany, but may have little interest in the children’s television assets at EM.TV’s core.

Since buying Jim Henson, EM.TV has sold the U.S. rights to Sesame Street’s classic characters to the Sesame Workshop and is near a deal to sell its 22.5% stake in the Odyssey Channel, a family programming service, to its partner Crown Media Holdings Inc. The two transactions are worth roughly $300 million.

Remaining within Jim Henson are rights to new Muppet characters, as well as the successful Disney Channel program, “Bear in the Big Blue House.” Jim Henson’s “Farscape” is the No. 1 show on the Sci-Fi channel; the company is the biggest independent producer of children’s television in the U.K., and is pushing into prime-time TV in the U.S. With EM.TV’s survival in the balance, both Disney and a group led by Jim Henson’s chief executive, Charles Rivkin, have expressed interest in buying Jim Henson, sources said. The Henson family has sold all the EM.TV shares acquired, and is said to be supportive of Rivkin’s bid.

EM.TV was once the darling of the promising German Neuer Markt new-economy stock exchange, and Haffa was one of the country’s most visible moguls with his yachting excursions and ski-slope negotiations.

But Haffa and his brother Florian, who was forced out late in 2000 after a disastrous term as chief financial officer, said their EM.TV enterprise remains attractive for investors despite the Formula One spinoff.

EM.TV executives have attempted to cast their fate as one dependent on the fickle interests of sports television viewers, and the fate of the Muppets has been relegated to a secondary issue among European entertainment executives.

Without Formula One or Jim Henson, EM.TV would be left with little more than its Junior TV properties, tens of thousands of hours of kiddie programming in German, that might be of limited interest to international markets.

Despite the eleventh-hour bailout, EM.TV faces an investigation into circumstances surrounding the collapse of the price of its stock, which lost 90% of its value in a few months.

Regional prosecutor Manfred Wick has said that investigations are proceeding into the questionable dealings of EM.TV, but that no formal charges have yet been forthcoming.

“Unfortunately, there are not such specific and reliable rules about handling shareholders’ money in Germany as in the United States,” lamented Christoph Efele, a spokesman for the German Assn. for the Defense of Small Shareholders. “Our laws are not as specific about what constitutes fraud or criminal misrepresentation.”

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Williams reported from Berlin and Hofmeister from Los Angeles.