Kirch a Step Closer to Acquiring EM.TV (updated)

German private media giant Kirch Group is near agreeing to take over EM.TV & Merchandising, throwing a financial lifeline to the struggling holder of a large F1 stake, industry sources said on Thursday.

Kirch and EM.TV are finalising details of a deal under which Kirch would acquire the stake of almost 50 percent in EM.TV, owned by Chief Executive Thomas Haffa and his brother Florian Haffa, who also serves on the firm's board.

Dealers said recent heavy turnover in EM.TV stock could reflect Kirch buying the shares needed for a majority stake.

EM.TV is due to report third quarter earnings by Monday and analysts believe the deal could be finalised over the weekend to coincide with the figures.

After the acquisition, EM.TV would focus on its core merchandising and children's television business - it produces the Sesame Street as well as the Muppets TV shows. Kirch would take over its 50 percent stake in Formula One holding company SLEC.

Analysts said Kirch would gain, among other, one of the prime content assets in the shape of Formula One for its Digital TV.

"EM.TV is an incredible content company. Kirch buys content cheap, especially Formula One, which it would get for a great price," said a London-based analyst.

EM.TV shares, which have rallied since Reuters first reported two days ago that the companies were in talks, advanced further, gaining 2.6 percent to 20 euros by 1215 GMT.

The stock has tumbled from a February high of 120 euros - hitting a low of 17.58 this week - on fears the ambitious media group has bitten off more than it can chew following a series of acquisitions.

Traders said the stock - which has underperformed the Nemax 50 index by 50 percent and the Nemax's media sector by 30 percent so far this year - remained the target of speculators.

Klaus Schneider, chairman of the Schutzgemeinschaft der Kleinaktionaere, a small shareholder protection lobby group, complained on Wednesday that EM.TV had engaged in "totally uncontrolled" expansion.

EM.TV acquired The Jim Henson Company earlier this year and at the same time faces a massive commitment to Formula One, after buying half of SLEC for $1.65 billion.

Bernie Ecclestone, who owns the remaining 50 percent of SLEC, has an option valid until the end of next May to sell a 25 percent stake to EM.TV for close to $1 billion, sources say.

In a fax to Reuters, the Formula One mogul declined to comment, citing confidentiality surrounding the EM.TV deal.

Reverse Merger?

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

"Either Haffa will swap his stake in EM.TV for a stake in KirchMedia or KirchMedia is entirely merged in a reverse merger into EM.TV which would spare Kirch an IPO itself," an analyst said.

Business newspaper Handelsblatt on Wednesday reported Kirch deputy chairman Dieter Hahn as saying he was considering delaying the flotation of KirchMedia - which groups TV channels ProSieben, SAT 1, Kabel 1 and N24, - scheduled for next year.

"The bourse flotation could also be done at a later point. It depends on how markets develop and what else we have planned," he was quoted as saying.

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.

Kirch and EM.TV declined to comment.