Leo Kirch Delays the Inevitable

German media group Kirch is inching closer to an insolvency filing after talks in Munich and Los Angeles between creditors and investors failed to agree a rescue plan for its core business, sources have said.

However, it was not clear whether media mogul Leo Kirch, who spent almost 50 years building an empire that controls Germany's biggest commercial broadcaster ProSiebenSat.1 and extensive movie and sports rights, would seek insolvency for KirchMedia on Friday or hold off until early next week.

Banking sources said a last-ditch meeting in Munich on Friday between minority KirchMedia shareholders including Rupert Murdoch's News Corp and Mediaset, the broadcaster controlled by the family of Italian Prime Minister Silvio Berlusconi, was unlikely to turn things around.

"The banks are not interested in talking any more," one source told Reuters.

Mediaset Finance Director Marco Giordani was taking part in the Munich talks, but banking sources dismissed the discussions as posturing.

"Murdoch just wants to see how far he can push the banks," one said, adding that negotiations, which have dragged on for weeks, had become increasingly tense in recent days.

Sources close to Kirch said the company had not filed for insolvency by 10:00 GMT on Friday and that a filing at the Munich court on Monday would be within the legal notice period.

Sinking Ship

A banking source said that at this point it was Leo Kirch himself - hoping for an 11th hour rescue - who was hesitating.

"At some point he will be guilty of insolvency delay but I can't say if that's a matter of hours or days," the source said.

In a further sign that the ship is finally sinking, the group parted company with its finance chief Brian Cook, sources said on Friday.

The insolvency of KirchMedia, the core television and rights unit, would mark the latest twist in a corporate saga with far-reaching political and economic consequences. The company would be placed in the hands of an administrator, who is likely to call banks and investors together in an attempt to arbitrate a solution.

Kirch is running out of cash as it staggers under a 6.5 billion euro debt pile. Rescue efforts envisaged a plan to inject 150 million euros in emergency financing, followed by an 800 million euro capital injection that would give the minority investors control of KirchMedia.

An auction of assets organised by the administrator could see several other players, including Hollywood studios such as Viacom's Paramount and Sony's Columbia, join Murdoch and Berlusconi in a race for a slice of the media market in Europe's biggest economy.

"There will be a long queue of bidders lining up if ProSieben goes up for sale," said Bernard Tubeileh, media analyst at investment bank Merrill Lynch in Frankfurt.

"Murdoch, Berlusconi, Vivendi, TF1, Granada Carlton, German publishing houses, you name it. It would give all of them a once-in-a-lifetime chance to get into German TV seriously."

Sources involved in talks between Hollywood studios that supply Kirch with movie rights and Kirch's bankers told Reuters the studios were interested in swapping claims against Kirch for equity stakes in his television operations.

Jobs at Risk

Kirch's looming failure has become a political hot potato as Germany limbers up for national elections.

It 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.

Weaker banking stocks helped cap the blue-chip DAX index's gains. HVB, which is owed some 460 million euros by Kirch, was the biggest loser, shedding 3.3 percent to 39.6 euros. Moody's on Thursday cut the financial strength rating of DZ Bank, another Kirch creditor, due to the likelihood of loan losses.

The Kirch group, based in the southern region of Bavaria, 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.

The group has to pay back a 460 million euro loan to Dresdner Bank next week.