Rupert Murdoch swoops in for Sat.1

German broadcaster resists sale

By ED MEZA

BERLIN Although German broadcast group ProSiebenSat.1 is refusing to sell its troubled flagship channel Sat.1 to News Corp.-backed pay TV operator Premiere, Rupert Murdoch may still have the last word.

ProSiebenSat.1 shares plummeted 28% in the wake of alarmingly poor first-quarter figures released April 24, which may force company execs to rethink their opposition.

Murdoch has in recent months built up a 22.7% stake in Germany's Premiere, and he's expected to boost that share even higher.

Premiere is eager to flex its newfound muscle. CEO Michael Boernicke announced plans to expand into free TV, and said the company would love to buy Sat.1, which in 2007 had a market share of 9.6% with its combination of German fare and U.S. films and skeins such as "NCIS" and "Numbers."

Boernicke believes the addition of a free TV web will bolster Premiere and help the group double or even triple overall revenue from its current e1 billion ($1.57 billion).

A Premiere/Sat.1 group would also provide great advantages in the acquisition of film and sport rights, Boernicke adds.

ProSiebenSat.1 execs were quick to rebuff the informal offer. Yet the publication of the group's $13.2 million first-quarter loss (compared with a $64.9 million profit a year ago) has reignited speculation that the channel's sale remains very much in the cards.

Behind ProSiebenSat.1's disappointing figures was Sat.1's continuing poor performance. There are also uncertainties surrounding ad sales due to last year's antitrust ruling barring TV ad rebates.

Sat.1 has sustained substantial ratings and ad losses in recent years, and is in need of a major programming overhaul.

But that is unlikely to happen -- infact ProSiebenSat.1 plans to slash costs by $110 million.

The group is owned by private equity investors Permira and KKR, which is likely to prefer short-term gains over long-term investment.

Not surprisingly, local observers see a strong possibility the company may soon be ready to sell off a major asset.

"In six to 12 months, the world will look very different," a confident Boernicke said recently regarding Premiere's prospects for a takeover of Sat.1.

Murdoch is famous for his perseverance, and the strategy may allow News Corp. to achieve a goal it has had trouble reaching in the U.K. -- expanding from pay into free TV.

BSkyB, Europe's biggest paybox by subscribers, controls a 17.9% stake in the U.K.'s terrestrial commercial web ITV. In January, however, the British government ordered it to cut the holding to less than 7.5% due to competition fears.

While BSkyB is appealing, Murdoch is looking to Germany, where News Corp. is Premiere's biggest single shareholder.

Murdoch is expected to raise his stake in the paybox to around 25% but not beyond 30%. Under German law, a 30% holding would require the company to mount a takeover offer. Currently, 75% of Premiere is in free float.

Meanwhile, Premiere is expanding its supervisory board in the wake of Murdoch's acquisition.

Joining the supervisory board at the annual shareholders meeting June 12 are Markus Tellenbach, former CEO of SBS Broadcasting, which ProSiebenSat.1 took over last year; Thomas Mockridge, the CEO of News Corp.'s satcaster Sky Italia; and management board member Mark Andrew Williams.

Even this announcement has sparked further speculation that Premiere will intensify efforts to buy Sat.1.

With Tellenbach on its supervisory board, Premiere would have a manager with extensive experience in both free and pay TV. A well-known industry player, Tellenbach not only ran Premiere when it was controlled by former owner Leo Kirch, but also German channel Vox when Murdoch was one of its main shareholders.