Kirch Files for Insolvency (Updated)

Media mogul Leo Kirch has declared insolvent the core of an empire he spent half a century building, a move which could trigger a takeover by German banks and publishers and keep aggressive foreign rivals out.

A Munich court said in a statement on Monday that Kirch Group's core rights and television unit, KirchMedia, had filed for insolvency on Monday, which places the company in the hands of an administrator. It gave no further details.

The move ends weeks of fruitless rescue efforts that saw minority KirchMedia shareholders such as Rupert Murdoch's News Corp and Mediaset, controlled by Italian Prime Minister Silvio Berlusconi, try to gain a foothold in Europe's biggest media market by taking over KirchMedia.

An insolvency filing by KirchMedia could bring down the whole Kirch empire, which is creaking under at least 6.5 billion euros (four billion pounds) of debt, including its ailing pay television station Premiere and the umbrella holding TaurusHolding, sources close to Kirch said.

The Kirch Group spans KirchMedia, which controls Germany's biggest commercial broadcaster ProSiebenSat.1, Kirch pay-TV and Kirch Beteiligung GmbH, which owns 40 percent of Bild newspaper publisher Axel Springer and controls the broadcast rights to Formula One motor racing.

Banking sources told Reuters on Saturday that Kirch's main creditors -- Bayern, HVB Group, DZ Bank and Commerzbank -- had sounded out Springer about a "German solution" which would prevent News Corp or Mediaset from gaining control of Kirch.

The banks, which are expected to hold a news conference in Munich later on Monday, have not ruled out reopening talks with those two parties further down the road.

Politicians Favour German Solution

German politicians have frequently voiced reservations over a strong role for Murdoch and Berlusconi in the country's media sector, ahead of much contested national elections this year.

Industry sources said on Sunday the TV rights to the soccer World Cup in 2002 and 2006 would be transferred to a KirchSport unit in Switzerland to separate them from the assets under administration.

This step had been agreed with the creditor banks and the world soccer federation FIFA, to which the rights would have been returned in case of insolvency.

Insolvency could add to Germany's growing jobless tally, further squeeze its banks' slim profits and would dent Edmund Stoiber's image as the Bavarian premier challenges Chancellor Gerhard Schroeder in a general election in September.

HVB Group, formerly HypoVereinsbank, which is owed some 460 million euros by Kirch, led German banking stocks lower, shedding 3.3 percent to 38.44 euros. The European Stoxx banking sector was down 0.6 percent. ProSiebenSat.1 dropped 1.7 percent to 11.30 euros.

The Kirch group employs 9,000-11,000 people and an insolvency could cost 3,000-4,000 jobs, union officials say.

Stoiber, who has based his campaign so far on his record of running one of Germany's most prosperous regions, helped bankroll Kirch's expansion through soft loans from Bayerische Landesbank, half-owned by the state of Bavaria.