Is Premiere worth an IPO?

Kofler fuels hope that raising funds via stox is viable again

BERLIN — The biggest initial public offering in Germany’s media industry has local investors titillated, but questions about the long-term prospects of pay TV platform Premiere persist.

The razzle-dazzle IPO marketing campaign orchestrated by Premiere’s savvy chairman and second-biggest shareholder Georg Kofler has also fueled hope among media companies that raising funds via the stock market is again a viable option, five years after the Neuer Markt crash.

Interest in Premiere is evident: investor subscriptions for stock are reportedly three times higher than the 42 million shares to be issued March 9. Company kicked off its 14-day subscription period on Feb. 23 with a price range set between E24 ($31.70) and $37 per share.

Premiere’s IPO could generate as much as $1.55 billion. Roughly 25 million of the 42.1 million shares to be issued will come from existing shareholders, plus an extra 5.5 million shares by way of an over-allotment option if interest in the offering is sufficiently high. A capital increase will offer another 12 million shares. In total, 51.3% of the company will be in free float.

Kofler, who stands to pocket $90 million from the IPO, will reduce his personal stake from 20.46% to 13.9%. Equity investment firm Permira, which holds nearly 55%, will trim its stake to 24%. Fellow shareholders, including Bavarian banks BayernLB and HypoVereinsbank, will retain minority shares in the company.

Premiere offers potential for growth. With 40 million TV households, Germany and Austria make up the biggest TV market in Europe. Only 8% of those households subscribe to pay TV compared with 40% in U.K. In addition, Germany’s cable upgrades and digitization will make it easier for TV viewers to get the service, which offers 26 TV channels and 21 audio music outlets.

Kofler is one of the company’s biggest assets. A seasoned TV exec who established commercial web ProSieben in 1988 and oversaw the channel’s successful IPO in 1997, he took the helm at Premiere in 2002 when it was still part of the now defunct Kirch Group. In short order he managed to pull Premiere back from the brink of bankruptcy and turned it around by slashing costs, reworking output deals with Hollywood studios and maintaining German soccer as one of Premiere’s principle assets.

Although it has yet to turn a net profit, Premiere has continually narrowed its losses — last year it cut its deficit by 60% to $107 million while boosting revenue 7% to $1.3 billion. Company managed its first operating profit (before interest, tax, depreciation and amortization) in 2004 with $109 million, and has consistently increased subscribers, now at 3.25 million.

For a company that lost $1.5 billion in 2001 and triggered the collapse of the Kirch empire the following year, it’s a remarkable story.

Yet Premiere faces a number of obstacles. It is no longer the sole player in German pay TV and competition is growing.

Not only are German cablers starting to offer video on demand and movie channels, but Haim Saban also has thrown his hat into the feevee ring.

Guillaume de Posch, the former deputy chief and programming director at French pay TV group TPS who now heads Saban’s ProSiebenSat 1 group, says it will launch pay TV channels in Germany this year.

Premiere owns lucrative national Bundesliga soccer rights, which are up for grabs next year. ProSiebenSat 1 may decide it needs the Bundesliga for its pay TV venture — that would trigger a bidding war and possibly leave Premiere without its most attractive content.

In addition, Germany still offers some 35 free-to-air channels — a fact that has always stymied the development of pay TV here. And TV-viewing Teutons are already saddled with ever increasing license fees and cable charges, costs that may deter them from dishing still more for pay TV.

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