Germany's Kirch Group has taken a minority blocking stake in beleaguered family entertainment rights trader EM.TV & Merchandising, which has seen its share price plummet in the last week, in reaction to a profit warning and disappointing third quarter figures.
Although Kirch was expected to acquire a majority stake, EM.TV announced at a press conference on Monday (December 4), that the German media giant will now hold 16.74% of its equity and 25% of voting rights. CEO Thomas Haffa will remain EM.TV's largest shareholder.
In addition, as part of a "strategic partnership" between the two companies, Kirch will stump up $550m for 49% of EM.TV's shares in Formula 1 company SLEC. In return, EM.TV will take control of children's programming outfit Junior TV, currently operated as a joint venture with Kirch.
EM.TV supervisory board chairman Nickolaus Becker also announced that the two companies plan to join forces to acquire a further 25% of SLEC. According to analysts, EM.TV can purchase the stake from Formula 1 boss Bernie Ecclestone after February 2001 for $982m.
According to Haffa, the co-operation with Kirch will help end EM.TV's "phase of uncertainty" and also offer the chance "with a strong partner of reaching a new quality of market penetration".
But news of Kirch throwing a lifeline to the embattled media concern did not stop its shares sliding by more than 38% on Monday, to reach an all-time low of less than Euros10. And the German cartel authority wasted no time in announcing that the passing of 25% of EM.TV voting rights to Leo Kirch would be regarded as a merger and investigated.
The share slide was also prompted by news that Herbert Kloiber's TeleMuenchen Group (TMG) is to buy back the 45% stake that EM.TV acquired in TMG last year. According to Becker, the TMG stake is no longer part of the company's "strategic core competence". EM.TV's exit from TMG, Germany's second largest rights trader after Kirch, may help to placate cartel authorities.
On the eve of Monday's press conference, Thomas Haffa's younger brother, who had served as EM.TV's CFO until October, announced that he would be stepping down as deputy board chairman "with immediate effect" because "I evidently no longer enjoy the confidence of the investors and shareholders". EM.TV was forced to revise its half-year sales figures in October because it had incorrectly included revenue from its recent acquisition of The Jim Henson Company and 50% of SLEC. Haffa has since been replaced as EM.TV's CFO by Rolf Rickmeyer.
On Friday, the company announced that it had lowered its full-year sales forecast by 2.7% to $620m (DM1.38bn) and earnings before interest and tax (EBIT) to $22m (DM50m) from $236m (DM525m). The company has also recently reported that its nine-month EBITDA showed a loss of $7.3m (DM16.2m) while EBIT was a loss of $37m (DM82.6m). Turnover for the period was $114.6m (DM254.9m).
Meanwhile, shortly before the Kirch deal was unveiled, EM.TV reported that it had closed the largest licensing deal in its history by signing a long-term agreement with New York-based non-profit educational organisation Sesame Workshop under which EM.TV will serve as the exclusive merchandising agent for Sesame Street in Europe. The two companies will also work together on the co-production of two new television series per year.