Markets Not Impressed with EM.TV

Germany's Kirch Group propped up ailing television company EM.TV on Monday by agreeing to pay $550 million for part of its Formula One motor racing stake, but the market was not impressed.

EM.TV, owner of the Muppets franchise, saw its share price slide more than 40 percent after the company slashed its profit forecasts for 2000.

Media company Kirch said it was obtaining a stake in EM.TV of up to 16.74 percent and buying 49 percent of its 50 percent stake in Formula One holding company SLEC.

But the news offered no relief to investors for whom EM.TV's recent share price slide highlights the decline in the Neuer Markt exchange for growth stocks and has dented faith in equity investment.

"This very nasty mood is spreading all over the media sector and also over the Neuer Markt as well," said Ernst Konrad, fund manager at Activest in Munich. "EM.TV has been a bellwether or proxy for the Neuer Markt. It is very bad news."

German shareholder protection group DSW said it was considering taking legal action against EM.TV after the company warned late on Friday that it now expected earnings before interest and tax of just 50 million marks this year, down from an earlier projection of 525 million marks.

"It is ridiculous to have a year-end target of half a billion and then reduce it to 50 million," said Juergen Gries, trader at Merck Finck & Co in Munich. "Some investors are really angry about that."

By 1330 GMT, EM.TV shares were 38 percent lower at 10 euros, the second biggest decliner on the Nemax 50 index of leading Neuer Markt stocks, which was down five percent.

EM.TV said 2000 sales would be 2.7 percent down on forecasts and margins significantly less. Chief Financial Officer Rolf Rickmeyer blamed the shortfall on failed deals in the company's licensing business.

The cash injection failed to allay fears over EM.TV's future as the company revealed it had total debt of 2.2 billion marks.

It said it had sufficient credit lines to cover its debt. But investment bank JP Morgan, which on Monday cut its rating on EM.TV to "market performer" from "buy", said that even based on an estimate of 1.17 billion marks of net debt, EM.TV's operating profit would not suffice to cover interest payments.

Kirch said it will hold 25 percent of voting rights in EM.TV. The final size of the stake will depend on the valuation of children's TV catalogue Junior TV, where EM.TV will take over Kirch's stake in the currently jointly-owned venture.

EM.TV's founder and Chief Executive Thomas Haffa will remain the largest shareholder in the group.

Ridiculous

An EM.TV spokesman also said a call option the company holds giving it the right buy a further 25 percent stake in SLEC by the end of the year remains, "only now we have a strategic partner to think about it with."

Formula One promoter Bernie Ecclestone, who owns 50 percent of SLEC, also has a put option giving him the right to sell a 25 percent stake in the Formula One holding company to EM.TV by the end of May, independent of EM.TV's call option.

Industry sources have told Reuters that Ecclestone could force EM.TV to stump up close to $1 billion for the 25 percent stake - a sum Kirch could help EM.TV finance.

Operating Loss

EM.TV said its nine-month earnings before interest, taxes, debt and amortisation (Ebitda) showed a loss of 16.2 million marks for the parent company - excluding Formula One and this year's acquisitions.

It recorded an operating loss on ordinary activities of 135.3 million marks for the nine-month period.

EM.TV said it had total liabilities of 2.2 billion marks, and said it had sufficient credit facilities at its disposal.

EM.TV also said that Sesame Workshop had acquired the rights to the Sesame Street children's television show.

The company said Thomas Haffa's brother Florian, the deputy CEO and former chief financial officer, would step down immediately.

EM.TV's profit warning came just weeks after Florian Haffa had said its full year earnings targets were not in danger.

Analysts said they hoped the profit warning marked the end of the company's negative news.

"That was one whopping downgrade and hopefully all the skeletons are now out of the cupboard," said a London-based analyst. "The new CFO can now start with a clean slate".

EM.TV's share price, which once put it on a par with some of the biggest companies in Germany, has plunged nearly 90 percent since February.