EM.TV to sell off Formula One stake to Kirch

Deal means collecting on $1 billion loan

BERLIN — Cash-strapped kidvidder EM.TV looks ready to part with its holdings in Formula One motor racing to Munich-based media giant Kirch.

For Kirch, that means collecting on the $1 billion loan it gave EM.TV to up its stake in Formula One marketer SLEC to 75%.

The loan followed Kirch’s $550 million bailout of EM.TV earlier this year, which gave it half the kidvidder’s original 50% stake. EM.TV upped its stake to 75% and split it 50-50 with Kirch.

With EM.TV now looking to sell off its entire stake in SLEC to reduce its debt and high interest costs, Kirch stands to get the full 75%.

Kirch is expected to use Formula One to beef up its free TV and film division, Kirch Media, which is due to go public in 2002.

But Kirch will have to pacify Formula One automakers, who have threatened to pull out of the racing circuit when contracts expire in 2007. They fear Kirch will lock up Formula One into its troubled pay TV venture Premiere World, and they have called for a 30% share in the lucrative pie.

As part of the deal, EM.TV is likely to get Kirch’s 50% in the companies’ joint Junior TV children’s programming library, much of which airs on Kirch channels Sat 1 and ProSieben.

EM.TV is still looking for buyers for the Jim Henson Co. and its stake in German film and TV firm Tele-Munchen Group.

Formula One earned EM.TV profits of $85 million in the first half of the year, but they were eaten up by $130 million in interest costs.

EM.TV recently posted half-year losses of DM127 million ($59 million), and EM.TV chairman Werner Klatten reiterated his desire to shed noncore assets.

Company blamed losses on the high costs of interest payments, depreciation and restructuring. Gross operating profits were down 25% to $53 million.

EM.TV’s stake in Formula One was fully consolidated in the second quarter of the year, which boosted company’s revenues. The motor racing venture pulls in estimated gross annual profits of around $270 million.

Company said the increase in sales in its core business of rights trading was in line with the weakened state of the market.

Company has been struggling since posting surprise losses of $1.2 billion last December. Founder Thomas Haffa quit in July, selling a 25% stake in the company to Klatten. Haffa, who retained a 16% stake, is under investigation in connection with possible securities law violations by allegedly giving false information on EM.TV’s assets. His brother Florian Haffa, former chief financial officer, was cleared in July of charges of insider trading.

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