Kirchmedia, the troubled German media giant, is expected to file for bankruptcy today and create a new holding company for the group's most valuable assets. The plan, formulated over the weekend by creditor banks and the Axel Springer newspaper group, would cut loose the pay-television arm largely blamed for debts of over €6.5 billion that have left the company insolvent.
Banks and German investors would then swap debts for shares in the new company with assets that would include the Formula One broadcast rights and Germany's largest private television company, ProSiebenSat1.
"The insolvency application is all ready and lying in a drawer. Now it is about an orderly insolvency that sees the restructuring and survival of KirchMedia assets," a lawyer for Kirch said yesterday. The plan is likely to exclude minority Kirch shareholders Mr Rupert Murdoch and Mr Silvio Berlusconi from the new holding company. They were unwilling to contribute to a €200 million loan last week to help Kirch pay its bills in the short-term.
By keeping the firm in German hands, the so-called German solution would sugar coat the bitter pill of the largest banktruptcy in Germany's post-war history.
But the plan could be scuppered by the firm's highly secretive, 75-year old founder, Mr Leo Kirch, who with his son controls 79 per cent of the core company.
KirchMedia will be a far less attractive prospect if, as some suspect, Mr Kirch has mortgaged off much of the family silver several times over to finance his doomed pay-television venture.
Mr Kirch is already believed to have made contingency plans for his most valuable asset, the broadcast rights for the 2002 and 2006 World Cup Finals that he bought for €1.9 billion.
He has transferred ownership of the rights to a Swiss company KirchSport, out of the reach of creditors. The collapse of Kirch could mean financial disaster for many German leading football clubs. Last year Kirch paid €358 million for the broadcast rights for first and second league games. Now the clubs say the bankruptcy would deprive them of over half their total income. A government suggestion to bankroll clubs with a €200 million bridging loan is no longer likely to come to anything after attracting widespread criticism.
"Germany's millionaire footballers will just have to tighten their belts a little," said Mr Edmund Stoiber, the Bavarian prime minister and chancellor hopeful.
He is anxious to distract attention from his role in organising €2 billion in soft loans between Mr Kirch, a close friend, and the board of the Bavarian State Bank, filled with his political allies.
With the most to lose from collapse and the most to win from a salvage plan, it was no surprise then that the Bavarian State Bank was the one leading the last-minute talks at the weekend.
Although the saga is not over yet, Mr Rupert Murdoch may emerge the biggest loser from the collapse of Kirch. He already owns a 22 per cent of KirchPay-TV and was believed to be interested in taking over ProSiebenSat1, Kirch's successful free-to-air television company. The takeover would have given him a 30 per cent share of Europe's largest television market.
