Kirch, EM.TV in cash crunch

December 12, 2001 Posted: 1505 GMT

LONDON (CNN) -- Media groups Kirch and EM.TV, which own 75 percent of Formula One racing, are facing new financial problems as they attempt to reduce debts.

Both the German companies have fallen on hard times after snapping up major sporting and entertainment rights and are now having trouble repaying debt, as advertising revenue slumps amid a global economic slowdown.

Kirch bought a stake in Formula One from ailing EM.TV, which had swallowed Muppets owner Jim Henson Company and half of Formula One owner SLEC at the peak of the dotcom boom. At the time of the purchase, EM.TV had a market capitalisation of about $15 billion and it's stock was trading near its peak of 120.

The stock dropped 8.7 percent to 1.49 in mid-afternoon trading on Wednesday.

Kirch also bought the rights to the 2002 and 2006 World Cups for $2 billion. Analysts say those rights put a further financial strain on the group, whose debt is estimated to be as much as $5.5 billion.   

Dresdner Bank is demanding that Kirch repay a $408 million loan which is already due and will not be extended, according to news reports on Wednesday. Both Kirch and Dresdner have declined to comment.

Another lender, Deutsche Bank, does not plan to call in a $451 million loan to Kirch, Reuters reported.

Meanwhile, EM.TV is being sued by two units of Deutsche Bank which claim they lost money after accepting shares in the media group as partial payment for their stake in Formula One.

Dresdner's decision to call in its loan comes as Kirch is attempting to restructure its operations.

The privately owned Kirch reportedly is looking to sell its 25 percent stake in Spanish television group to Telecinco to help pay down its debt. 

Kirch also controls broadcaster ProSiebenSat 1, which operates four TV stations in Germany, and has been hurt by declining advertising revenue in the third quarter. Kirch's cash crunch could threaten the planned merger of its Kirch Media division with ProSiebenSat 1.

The group's weakened financial situation has led to speculation that it could become the target of a takeover.

Last week, there was speculation that Rupert Murdoch's New Corp, which already has a 22-percent shake in Kirch Media, may be a likely buyer.   

As for EM.TV, the group's financial problems worsened soon after it purchased a 12.5 percent stake in Formula One from Morgan Grenfell Development Capital Syndications and Deutsche European Partners IV --  both units of Deutsche Bank -- taking its stake in Formula One to 50 percent.

EM.TV paid the two Deutsche Bank units $712.5 million in cash and 10 million in shares in March 2000 for the Formula One stake.    

The Deutsche Bank units claim they lost money on the deal as EM.TV's value fell while its debt problems mounted.