Raising capital for the dead

Equity investors breathe new life into Teuton biz

BERLIN — Venture capitalists may swoop down like vultures, but instead of feeding on carrion they’re resuscitating Germany’s dying media companies and rejuvenating old players.

International equity investors Apollo Management, Goldman Sachs Capital Partners and Hellman & Friedman are the new Teutonic media players.

It’s a sign of the times. These investors flocked to Germany in the past two years after the implosion of media companies on the now-defunct Neuer Markt, the fall of media titan Leo Kirch and the rejection of Liberty Media’s $6 billion bid for Deutsche Telekom’s cable assets.

All this shook the sector to its roots and forced stock prices down. But it also shook local investor confidence, leaving them scared to make a move — and leaving the way open for equity investors.

“Germany is one of the biggest media and ad markets worldwide,” says Jan Herbst, an analyst with Sal Oppenheim in Frankfurt. “It makes sense that investors would want to acquire these companies at relatively cheap prices.”

Haim Saban recently described his acquisition of former Kirch broadcasting group ProSiebenSat 1 as “a no-brainer,” adding that he still can’t believe German investors didn’t go for it. “It was a risk-free deal.”

Bankrolled by Hellman & Friedman, Bain Capital and Thomas H. Lee, Saban obtained the core TV division of Kirch’s bankrupt media empire for $9.12 per share; ProSiebenSat 1’s stock price is currently at $20.60.

Meanwhile, Apollo, which recently agreed to sell its regional cable company Iesy to German cable giant Kabel Deutschland, has turned its attention to John Malone’s Teutonic cabler PrimaCom.

The publicly listed company, 27%-owned by Liberty Media, is performing healthily but has massive debts. Although operationally profitable (before interest and tax), last year it had a net loss of $144 million (from $241 million in revenue) due to liabilities of some $1.3 billion.

Apollo and fellow PrimaCom creditor JPMorgan Chase are offering to take over the company in lieu of its liabilities.

PrimaCom’s management and supervisory boards have approved the plan, and shareholders, including Liberty, will vote on the deal in June.

If greenlit, Apollo and JPMorgan Chase will transfer PrimaCom’s assets into a new holding, BK Breitband Kabelnetz.

The investors are offering shareholders a payout of more than E5 million ($6.1 million), about 30¢ a share (PrimaCom stock is trading at around 38¢).

PrimaCom chief financial officer Stefan Schwenkedel says the plan is the only thing that will save the company.

“For 18 months we tried to find an investor, to no avail,” he says. “This is the only way to realize any residual value of the shares. I do not see another option. If shareholders do not agree to the proposal, insolvency will be a real and immediate threat.”

In a similar case, investment group Permira last year saved pay TV operator Premiere from insolvency. Company has seen a dramatic recovery and is aiming to go public next year.

It’s not just financially strapped companies that draw private investors, however.

Apax, Goldman Sachs and Providence last year jumped on Deutsche Telekom’s six regional cable franchises for the bargain price of $2.3 billion after John Malone’s $6 billion offer was rejected by German antitrust authorities.

The investment created Kabel Deutschland, which is expanding and expected to go public in the near future.

Ironically, the company is taking over three regional cablers, which themselves are backed by venture capitalists: Iesy, acquired last year by Apollo, Pequot and Golden Tree from U.K. cabler Klesch & Company; Ish, picked up by Deutsche Bank and Citigroup after its parent, a subsid of international cabler Callahan Associates Intl., went bust; and Kabel BW, acquired by Blackstone Group, CDP Capital-Communications and Banc of America Equity Partners from Callahan.

Despite this, German investors remain notoriously risk averse — and foreign rivals can only hope that they won’t change.

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