Kirch Increases F1 Stake, Loans Probed

German media group Kirch said on Monday that it had raised its stake in Formula One holding unit SLEC to 58.3 percent from 36.8 percent, gaining official control of the world motor racing championship from German film rights trading group EM.TV .

Kirch confirmed a statement by EM.TV & Merchandising AG that it had exercised an option to convert a $1.07 billion loan - agreed between the two groups in March - including interest, into a stake in Speed, the holding company set up by Kirch and EM.TV for their 75 percent stake in SLEC.

The other 25 percent in SLEC is still held by the series organiser, Bernie Ecclestone. By exercising the option, Kirch - which is privately-owned and headed by German media magnate Leo Kirch - has raised its stake in Speed to 77.7 percent from 49 percent, while EM.TV's stake falls to 22.3 percent from 51.

Kirch said it was keen to raise its stake still further.

"Converting the loan into shares shows Kirch's belief in Formula One," said Bernard Tubeileh at Merrill Lynch in Frankfurt. Owning the rights to the car series could help Kirch channel parts of the car racing series on to its loss-making pay-TV station Premiere to boost subscribers.

However, Kirch will have to tread a careful path with the car-makers, who have threatened to set up a rival series if it puts Formula One primarily on to pay-TV. At the moment there are about two million subscribers for pay-TV compared with about 33 million television households, Merrill's Tubeileh said.

News that Kirch has exercised the option - which it has been able to do since September - comes after reports that German bank regulator BAKred is probing Kirch's bankers for information on loans in the wake of serious financial problems at a number of media companies on the Neuer Markt.

Shares in one of Kirch's main lenders, HypoVereinsBank , plunged over eight percent on Monday amid concern over its exposure to Kirch as well as troubled airline Swissair. BAKred and HypoVereins declined to comment on the probe. Kirch, which traditionally reveals little information about its finances, said it would present its half-year results mid-week.

Football Rights

Kirch is believed to be shouldering hefty debts after spending heavily on acquiring the rights to Formula One and start-up costs for its Premiere pay TV service.

The company has spent about 3.4 billion Swiss francs ($2.13 billion) on acquiring the European and worldwide rights to the 2002 and 2006 World Cup soccer matches. It is now battling to sell on the rights to broadcasters in Britain, France and Italy, who claim they are too expensive.

Merrill's Tubeileh believes Kirch, which has some 1.1 billion francs in pre-sold worldwide rights for the 2002 World Cup, could afford to make concessions in Europe. Kirch said on Monday it had held a "constructive" meeting with representatives of British TV broadcasters BBC and ITV but declined to comment on the content. He said the discussions with both would continue.

On Sunday, England's football association (FA) said it was lobbying the British government and football world body FIFA to ensure that next year's World Cup finals are shown on British terrestrial television.