EM. TV May be Forced to Pay $1 Billion for F1 Stake

German media company EM.TV & Merchandising could be forced to buy a 25 percent stake in Formula One motor racing holding company SLEC for close to $1 billion, industry sources said on Wednesday.

The sources said Formula One supremo Bernie Ecclestone, who owns a 50 percent stake in SLEC, has an option valid until the end of May to sell a 25 percent stake to EM.TV.

Industry sources told Reuters on Tuesday that EM.TV is in talks with German media giant Kirch Group and others about the possibility of being bought, a move analysts say could provide EM.TV with the means to build its Formula One business.

If Ecclestone exercises his option, EM.TV would have to pay almost $1 billion for the stake, the sources said.

"That could push EM.TV into financial difficulties," said one analyst.

A spokesman for EM.TV said only that EM.TV has a buy option and Ecclestone a sell option. Ecclestone was not immediately available for comment. Kirch declined to comment.

EM.TV earlier this year bought a 50 percent stake in SLEC for $1.65 billion and has an option to buy a further 25 percent by the end of the year. Ecclestone's "put option" to sell a 25 percent stake in SLEC to EM.TV by the end of May is independent of EM.TV's "call" or buy option, the sources said.

Shares in the company have fallen around 18 percent this week amid persistent talk it could issue a profit warning when it reports third-quarter results on Friday.

The stock was trading 5.95 percent lower at 19.75 euros by 1725 GMT on Wednesday after falling to 18.70 earlier in the session - just above its year low of 17.58 euro set on Tuesday prior to a recovery on news of the talks with Kirch.

The Neuer Markt's Nemax 50 index was 1.95 percent lower.

"Uncontrolled Expansion"

"The problems at EM.TV don't surprise me at all," said Klaus Schneider, chairman of the Schutzgemeinschaft der Kleinaktionaere, a small shareholder protection lobby group.

"The expansion policy was totally uncontrolled."

Earlier this year, EM.TV also acquired The Jim Henson Company - maker of children's television programmes the Muppets and Sesame Street.

EM.TV has declined to comment on the speculation of a profit warning though it dismissed talk earlier in the week that it could be bankrupt. It has also declined to comment on whether it is in talks to be taken over by Kirch.

Industry sources said EM.TV's talks with Kirch centre on KirchMedia GmbH acquiring a majority of EM.TV shares, most of which would be sold by EM.TV founder and Chief Executive Thomas Haffa.

EM.TV has had close contacts with Kirch since it was formed in 1989. Haffa is a protege of Kirch boss Leo Kirch and Kirch sold EM.TV a large stock of children's programmes in 1998 which transformed the group into Germany's biggest supplier of children's TV.

The sources said the talks could be concluded this week but it was not yet certain that an agreement would be reached. It was also possible that EM.TV was talking to other media groups about a merger, they added.