Germany’s Privately-Held Bertelsmann, Virtually Debt-Free, Spends Some €1.5 Billion on Mostly TV Acquisitions This Year and Still Has Another €500 Million to Go

Philip M. Stone September 12, 2005

Bertelsmann, the world’s fourth largest media company, has been busy this year investing its €2 billion war chest on such diverse entities as an automobile magazine publisher in Europe to CD direct seller Columbia House in the US, while at the same time getting out of the US magazine business, but it is its investments in the European television market that attract the most attention.
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Television advertising around Europe is still pretty much in the doldrums, but Bertelsmann, with its ever-increasing investments in European television via its RTL operations, is giving a clear signal that television is where it believes the big money will be in the years to come.

It’s a different message to what one hears in the US where there are fears that advertisers are unhappy that their messages increasingly are failing to gain the desired audiences because of home digital recorders that forward through advertising, and more importantly that the desired young demographics are flocking to the Internet for their entertainment needs.

RTL’s home German television advertising market is still weak – it has been for five years – with few signs of quick improvements. It is because of the German market’s weakness that RTL is busy diversifying into other countries. It currently is Europe’s largest television operator with stakes in 31 TV stations (and 33 radio stations) in10 European countries.

That strategy showed best ever results for the first six months of 2005, with net income at €312 million from €195 million euros a year earlier, Sales dropped 2.4 percent to €2.4 billion euros –-German sales were down 4.4% but improvements elsewhere helped the financial picture – and significantly lower taxes benefited the bumper result.

Bertelsmann overall profits fell from €550 million to €349 million, on revenues of €8 billion.  Besides the poor German television performance there were restructuring charges and poor sales at Sony BMG Music Entertainment. Revenue increased by 50% at Random House and by 30% for Gruner + Jarhr, the latter helped particularly by extricating itself from its disastrous US magazine business plus good uptakes on new French TV magazines.

The TV investments deserve a special look.

RTL bought ht the remaining 35% it did not already own, and which it desperately wanted, of the UK’s Channel 5 in July for a price of some €365 million (the thinking before the sale was that a premium price would be around  €320 million). RTL said that Five’s first half advertising numbers were up 14.5% in the six months to June from a year earlier. Now that it had 100% control it was looking to further invest in the station with a larger programming budget and it was looking at a multi-channel approach possibly through buying Flextech that owns several cable/satellite channels.

That Channel 5 performance compares favorably with ITV, the UK’s largest commercial television operator, that reported ad revenues down 3.4% in the first half, although it announced a 60% increase in profit because of a property sale and, more important, a large reduction in the license fees paid to the government. ITV said it expects advertising revenue to be up some 4% in the second half of the year.

In France, RTL’s M6, the second largest French commercial broadcaster, reported a 2.6% rise in first-half profits to €87.2 million from €84.9 million the year before. That compared with TF1, the country’s largest television broadcaster, which announced a 6.3% net profit increase to €176.6 million from €166.1 million a year ago, but that profit was achieved via a lower tax bill and lower interest payments. Revenues actually fell 1.7% to €1.47 billion in the first half, mainly because of advertisement cutbacks for food and cosmetics, plus a 2.9% increase in programming costs.

RTL also increased its stake from 5% to 16.1% in Portugal’s Grupo Media Capital that runs the country’s TV1 network. The share increase came just in time to enjoy the benefits of an expected bidding war that has sharply pushed up the Portuguese company’s share price. Spain’s Grupo Prisa has an option to buy 46% of the company whereas a venture capital firm is also looking to make a bid for the group.

RTL also bought a controversial 30% stake in REN-TV in the CIS for a price estimated between €50 – €65 million. REN-TV was the last CIS national television channel to offer independent critical news coverage, and now two Russian conglomerates with close ties to the Kremlin own 70% of the station (one of the conglomerates beating out Rupert Murdoch’s News International for a 35% share).

Some CIS libertarians fear that RTL, the first non-CIS buyer allowed into the CIS television market, was taken on to manage the station’s format switch to more entertainment with less reliance on news reports critical of the Kremlin.

In all RTL runs television operations in Germany, France, Spain, the UK, the Netherlands, Belgium, Luxembourg, Croatia and Hungary. It reaches a global audience of 250 million viewers monthly.

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Privately-Held Bertelsmann Buys Out 25% Minority Holder For €4.5 Billion - May 28, 2006

Doing just about everything it could to prevent an IPO, Bertelsmann, owned by Germany’s Mohn family, has agreed to buy out 25% minority owner Groupe Bruxelles Lambert for €4.5 billion. The intriguing question is what will Bertelsmann sell to pay down the bank loans it is taking out to do the deal.

First to go will be its BMG music publishing business that is expected to fetch around €1.4 billion, although the final price could be more since several music groups are anxious to build up their music publishing arms (they get a royalty every time their published music is played live or broadcast.)

But that will still leave borrowing at high levels, so what else will go? Obviously not its RTL television group. The next obvious choice points to its 50% share in the Sony/BMG recorded music unit -- especially since the two partners don’t see eye to eye on all management matters -- but Bertelsmann officials are adamant that business is not for sale.

At the very least, if nothing more is sold then don’t look for further Bertelsmann buys before the end of 2007, unless such a buy is accompanied by an existing asset sale, too.

With the buyout Bertelsmann’s debt will be about 3.4 times underlying profit whereas the company’s target is to get it to 2.3 times earnings by the end of 2007.

Where Does Bertelsmann Go From Here? - April 3, 2006

One problem with success is that minority shareholders want to cash out one way or another, and that is now the problem privately-held Bertelsmann faces.

Europe’s largest media company recently announced that revenue grew last year by 8% to €2.62 billion, with operating profit increasing 17% to €250.3 million. Perhaps no so coincidentally minority shareholder Groupe Bruxelles Lambert (GBL) is said to be planning an IPO for its shares to obtain true shareholder value for its 25% share, a financial event move the majority shareholder Mohn family would prefer to avoid.

Bertelsmann hired Boston Consulting last August to take a close financial look at the various parts of the company pie. Although said to be unrelated, recent media reports say that Bertelsmann is in talks with Sony to sell its 50% stake in Sony BMG, the world’s second largest music company, but that would produce only around €2 billion Euros whereas GBL’s stake in Bertelsmann is probably worth somewhere between €3 billion to €5 billion.

So if something else is to go to pay off GBL and avoid the IPO, then it might be Gruner & Jahr, the Hamburg-based publishing company, that the Tagesspiegel newspaper has reported is up for sale, but there has been no company confirmation.

Bertelsmann’s most profitable unit is its RTL television and radio brand said to be worth €11 billion alone.