“The Business Logic of Combining Axel Springer and ProSeiben is Compelling”

Michael Hedges August 11, 2005

All was happiness in Munich when the long negotiated deal was announced bringing Germany’s most profitable television operator under the wing of Germany’s biggest newspaper publisher.
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The late Alex Springer, founder and company name-sake, was said to have dreamed of getting into the television business before he died 20 years ago. Now the publisher of Bild and Die Welt has entered the rarified air of media conglomerate and closes the gap with Germany’s biggest media empire, Bertlesmann AG.

Alex Springer CEO Mathias Doepfner called it “the right deal at the right time” at the press conference August 9. Direct negotiations have been taking place for months and there’s been a long sense of inevitability that even pre-dates ProSiebenSat.1.

The multi-stage transaction starts with a buy-out of Haim Saban’s 88% of ProSiebenSat’s common stock shares. Axel Springer already owns 12%. Yes, that makes 100%. It also increases Axel Springer’s share of the preferred, non-voting stock to 25%. This part costs Axel Springer €2.5 billion.

Then remaining holders of preferred stock, largely investment houses, will be offered a free-float exchange for common stock costing Axel Springer €1.3 billion. And the company will graciously accept about €500 million in debts.

Then, if all goes well with the regulators, the two companies will be merged into a giant one, pleasing just about everybody. Haim Saban will see a 300% return on his investment after buying the television assets of the bankrupt Kirch Media a mere two years ago. Saban also becomes chairman of the TV supervisory board and shareholder in the merged company.

The investment houses are happy. “If there should be a capital increase, we would like to increase our investment substantially,” said Brian Powers, CEO of Axel springer’s second largest shareholder, Hellman & Friedman LLC. “The business logic of combining Axel Springer and ProSiebenSat.1 is compelling. From a capital markets point of view, the opportunity to invest in the combined entity with a significantly increased free float should prove most attractive.”

Mr. Doepfner is happy. At the Munich press conference he talked about being a “serious challenge” to Bertelsmann AG. Expansion, he explained, would either come from the newspaper side internationally or from television. And, after failed attempts at merging with Ringier and, more recently, a purchase of UK newspaper Daily Telegraph, television became the obvious choice.

And Freide Springer is happy. The widow of the late Axel Springer keeps voting control over the company.

Is anybody unhappy? But, of course. The political bent of Axel Springer Verlag has always been sharply to the right. With the German body politic moving recently in the same direction, those on the left see no joy in having a huge media company on the opposite side of the aisle. SPD member and president of the Bundestag committee on culture and media Monika Griefahn threw out a warning by referring to the “Italian syndrome,” directly comparing this bigger media company with the empire of Italian Prime Minister Silvio Berlusconi.

Also unhappy are the competitors, although Bertelsmann AG has remained above the fray, so far. The German media antitrust body – the Bundeskartellamt (KEK) – will take a good long look at this first ever merger of a newspaper publisher and television operator. Last year publisher Holtzbrinck tried to purchase Berlin titles Berliner Zeitung and Kurier. The Bundeskartellamt though it a bad idea, citing media monopoly fears in the German capital. Holtzbrinck vice president Michael Grabner, quoted by public broadcaster Deutsche Welle, said he expected “the same standards to be applied to Springer.”

“It is not a simple case, said KEK media commission chairman Dieter Doerr, quoted in the Frankfurter Allgemeine Zeitung (FAZ). “Bertelsmann is structured differently and has not been in the newspaper business.”

The regulators will pass judgement, likely by the end of the year.

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Alex Springer Reports Q2 Profits, Attacks Regulators - August 22, 2005

Leading German publisher Alex Springer AG reported Q2 2005 profit up 35% based on cost cuts and foreign investments, according to Bloomberg News.

Earlier this month the company completed negotiations for control of ProSiebenSat.1, Germany’s largest television operation.

Net income was €52.7 million on €614.8 million sales. Q2 results were calculated by Bloomberg News based on results for the first half of 2005 released last week. Sales increased 2.3% of the same period in 2004.

Springer’s Polish tabloid Fakt, with a format similar to Bild, is a significant success, reaching a circulation over 500,000. Springers Budapest daily, launched in October last year, called Reggel (Morning) looks like USA Today and early results cost editor Zslot Pauska his job. 30,000 of the first 50,000 copies were promotional give-aways. In the 1990’s Springer tried a gossip sheet in Spain that also failed.

Since the announced acquisition of ProSiebenSat.1, media regulators and concentration critics have raised warnings about the deal. Springer, according to an article in the Frankfurter Allgemeine Zeitung (FAZ), is saying that the Media Concentration Commission (KEK Kommission zur Ermittlung der Konzentration im Medienbereich) has no authority to stop the deal because it will only acquire 22.5% of the ProSiebenSat.1’s common stock. The threshold, not crystal clear, has been 25%. KEK Chairman Dieter Dörr said he could, in fact, look at acquisitions below the 25% threshold, an opinion echoed by the Landesanstalt für Medien (LfM), the Nordrhein-Westfalen state media regulator.

Springer’s well-known right-wing political stance is brought into focus as Germany heads into elections. The company maintains that its editorial position will not creep into the television operation, a view causing sneers from critics.