Kirch is facing yet more problems after its publishing subsidiary Axel Springer said it is set to post the first loss in its company history, fueling speculation that Kirch will pull out of the group in the short term.
German media mogul Leo Kirch under pressure
Axel Springer Verlag's announcement, made late Tuesday, that it will post the first loss in its company history this year comes as the latest in a series of blows to Kirch Group, the beleaguered media giant.
Kirch owns a 40% stake in Springer. With Kirch weighed down by huge debts and having to pay off several major loans before Christmas and early in the new year, industry observers said they expected the group to sell its stake in Springer.
"Considering Kirch's urgent need of cash, a sale of his Springer shares looks likely," said Christian Rupprecht, analyst at M.M. Warburg bank. Over the past few days, Kirch has insisted that it has no intention of pulling out of Springer.
But with Springer expected to post a "two-digit million loss this year" (Rupprecht), Kirch's situation is set to worsen. Last year, Springer still paid a dividend of around 19 million euros to Kirch. A payout looks anything but certain for the current year.
A spokeswoman for Springer said the supervisory board had not yet decided whether to pay a dividend or not. Kirch has pledged its 40% stake in Springer as collateral against a DM1.1 loan from Deutsche Bank. Media mogul Rupert Murdoch and his News Corp. have been touted as the party most likely to be interested in buying the stake.
But people close to Springer's supervisory board said that several domestic newspaper publishers have also expressed interest. If two German media companies each acquire half of Kirch's stake in Springer, they will not encounter any antitrust obstacles.
Under German cartel law, the only transactions that have to be examined are those in which one publisher acquires a stake of more than 25% in another.
Springer, which last reported sales of 2.9 billion euros, announced as early as spring this year that it would implement rigorous savings measures.
By 2003, some 10% of its 14,000-strong workforce is to be cut. The planned editorial tie-up between its flagship papers Welt and Berliner Morgenpost will lead to further job losses.