Kirch Banks Set to Take Over F1 Stake

Creditor banks to insolvent German media group Kirch are set to swap $1.6 billion in loans to Kirch for a 75 percent stake in the Formula One racing car business, one of the banks said on Sunday.

Partly state-owned BayernLB and U.S. investment banks J.P. Morgan and Lehman Brothers will take over the Formula One stake jointly in a move expected since Kirch's holding company filed for insolvency last month, a spokesman for BayernLB told Reuters.

"The creditor banks will swap their loans into ownership stakes," BayernLB spokesman Peter Kulmburg said. "The swap will be pro rata of the banks' loan exposure."

As Leo Kirch was about to lose another piece of his collapsed empire, the media mogul continued his feud with publisher Axel Springer when he said an emergency shareholder meeting of the publisher would have to take place by mid-August.

The fall of Kirch's empire spanning TV broadcasting, rights trading and media stakeholdings sent shockwaves through Germany's media industry this year and left its banks looking into the collaterals they accepted for 7.5 billion euros ($7.3 billion) in loans to Kirch.

BayernLB last year lent Kirch $1 billion to acquire the stake from embattled media group EM.TV & Merchandising AG and from Formula One supremo Bernie Ecclestone, while J.P. Morgan and Lehman lent $300 million each.

The banks will call in Kirch's 58.3 percent stake in SLEC, the company which owns the rights to the racing circuit, and the 16.7 percent stake still owned by EM.TV, which they had accepted as collaterals to their loans, Kulmburg said.

Kirch was not immediately available for comment. But sources close to Kirch said the banks faced a long and complicated procedure that could even leave them with a smaller stake in Formula One.

"Calling in the collateral may be the plan, but they haven't even started to launch the procedure," one source close to Kirch said.

"They'd have to start with independent auditors valuing the stake and if the value is higher than the loan, they could end up with a smaller stake," the source said.

BayernLB chief Werner Schmidt said earlier this year the bank valued the Formula One business as a whole at four to five billion euros and could sell on the stake to the carmakers participating in Formula One.

Schmid, who heads the bank which, under the control of the Bavarian government, became Kirch's main supporter and biggest lender with a total exposure of two billion euros, reiterated in an interview with a German Sunday paper that the bank wanted to hold the stake only temporarily.

However, Kulmburg said there was no timeline for a sale of the stake, nor a decision to whom to sell it.

The main carmakers in Formula One have taken the first steps to setting up their own championship from 2008 when an agreement between teams, the International Automobile Federation and SLEC expires.

Lehman Brothers and J.P. Morgan could not be reached for comment immediately. EM.TV declined to comment.

Springer Emergency Meeting Called

While the Formula One business, which analysts say was the final nail in the coffin of his empire, was slipping away, Kirch on Sunday confirmed it requested an extraordinary shareholder meeting of publisher Springer.

"Springer has until Friday, July 12, to call the meeting, which has to be held by the middle of August," said the company holding Kirch's 40 percent stake in Springer, the publisher of Germany's best-selling tabloid Bild, in a statement.

At the regular shareholder meeting last month Kirch renewed his feud with Springer when his lawyers sought an independent probe into a controversial put option that Kirch blames for triggering the collapse of his media empire.

Kirch asked shareholders to support a claim for damages against the management board and main shareholder Friede Springer, but Springer's supervisory board did not allow shareholders to vote on the motions because they were not announced properly.

By exercising a 767 million euro put option against Kirch instead of exploring alternatives suggested by Kirch, Springer's board damaged its own shareholders as the option became worthless after Kirch filed for insolvency, Kirch's lawyers said at the meeting.

Leo Kirch is currently trying to sell his stake in Springer to repay a 720 million euro loan to Deutsche Bank secured by the stake. He has until August 31 to complete the sale.