Germany's Kirch Group is in negotiations to acquire a majority stake in local family entertainment rights trader EM.TV & Merchandising, which earlier this year swallowed The Jim Henson Company and 50% of Formula One motor racing company SLEC.

EM.TV's shares rebounded slightly on Tuesday to close at Euros21.50 on news of the talks. Earlier in the day they had plunged by more than 20% to a two-year low of Euros17.58, amid speculation that the company might issue a profit warning at the end of the week.

Neither side would comment on the talks, but it is understood that EM.TV might be talking to other potential buyers. Among those tipped to be interested are Bertelsmann and Rupert Murdoch. But RTL Group, created this year from the merger of the TV arms of Bertelsmann, the UK's Pearson and Belgium's Audiofina, said it was not in negotiations with EM.TV.

Several ties exist between Kirch and EM.TV. In 1998, Kirch sold EM.TV its children's programming interests which were packaged with other holdings to form Junior TV. Both companies are also shareholders in Bernd Eichinger's Constantin Film.

EM.TV moved on Monday to shrug off persistent market speculation that it is experiencing financial difficulties. Rumours started circulating in October when the company admitted that it had incorrectly reported sales figures. CFO Florian Haffa has since been replaced by a new finance director, Rolf Rickmeyer.