- The Washington Times - Tuesday, April 9, 2002

MUNICH (AP) Entrepreneur Leo Kirch's core television business filed for bankruptcy yesterday, stripping 75-year-old Mr. Kirch of control and leaving four creditor banks looking for new investment to refloat the company.

Mr. Kirch announced his departure from KirchMedia, the subsidiary that controls the group's profitable private television stations as well as a vast film library, after the bankruptcy filing.

"It should have been successful," he said in a letter to employees.

But the cornerstone of Mr. Kirch's media holdings collapsed under a mountain of debt, carrying $1.2 billion of the Kirch Group's total $5.7 billion in outstanding loans. The KirchMedia debt includes $352 million owed Hollywood studios for film rights.

A temporary administrator appointed by the Munich district court has three months to oversee the company's finances and work with banks on a restructuring.

"It's a turning point, not an ending point," Commerzbank head Wolfgang Hartmann said at a news conference.

Still, the failure has far-reaching consequences affecting the World Cup soccer broadcast rights, German soccer and Formula One auto racing, as well as national politics.

Bayerische Landesbank, half-owned by the Bavarian government, is Mr. Kirch's biggest creditor with nearly $1.76 billion in bad loans. That has left state Gov. Edmund Stoiber, who is challenging Chancellor Gerhard Schroeder in national elections in the fall, vulnerable to criticism.

Mr. Schroeder has called the loans, which financed Mr. Kirch's ambitious push into Formula One and into pay television, "highly questionable."

Mr. Stoiber defended the loans as essential to keeping Munich an important center of Germany's media sector. "This commitment for the sake of many thousands of future jobs was and remains absolutely correct," he said, rejecting Mr. Schroeder's criticism as "grotesque."

KirchMedia, with its five television stations and massive library of films, represents the parts of Mr. Kirch's business the banks considered valuable enough to be restructured rather than liquidated for debt. They said they would supply the new credit needed to keep KirchMedia going while investors are found to come up with what Mr. Hartmann described as "a sum in the four-figure millions." Some of the company's debts could be discharged by the court.

No potential investors made their intent public yesterday, though the rescuers claim they've had expressions of interest.

The banks said yesterday they might be willing to assume a majority in the company, but not for the long term.

The bankruptcy left serious questions about the future of two other main parts of Mr. Kirch's business, his loss-making pay TV operation and a holding company that has stakes in other media companies and in Formula One auto racing.

KirchPayTV spokesman Michael Jachan said the company was in talks that would determine whether it, too, would seek bankruptcy protection from its creditors. The holding company, Kirch Beteiligung, owns 40 percent of newspaper publisher Axel Springer Verlag and 58 percent of Formula One, and those stakes could also wind up being sold for debt.

Erwin K. Scheuch, co-author of a book on the German bankruptcy system, said the biggest bankruptcy in postwar German history was that of construction magnate Juergen Schneider in 1994, which left about $2.24 billion in unpaid debt.

Mr. Kirch appeared to have salvaged one juicy part of his business, the TV rights to 2002 and 2006 World Cup soccer.

World soccer's governing body, FIFA, said yesterday the rights were transferred to a Kirch subsidiary in Switzerland that was out of reach of the bankruptcy proceeding and that the broadcasting of this year's tournament, from May 31to June 30, was secure.

While FIFA said the move was proper, Mr. Scheuch said it was unusual to transfer assets before a bankruptcy filing.

"Normally that is against the law in a bankruptcy," he said. "In all likelihood that is what Kirch would like to retain."

Months of talks on a proposal to give control of KirchMedia to existing minority investors, including companies of U.S. media mogul Rupert Murdoch and Italian Prime Minister Silvio Berlusconi, broke down last week. Still, Mr. Murdoch and Mr. Berlusconi are among investors invited to recapitalize KirchMedia, said Wolfgang van Betteray, a bankruptcy expert appointed by Mr. Kirch.

Mr. Berlusconi's Mediaset and Fininvest companies declined to comment yesterday.

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