Germans gear up to keep Murdoch out

THE EXTRAORDINARY tale of the crumbling empire of German media mogul Leo Kirch can be summed up in many ways. It is the story of over-extended bankers and bondholders trying to snatch back what money they can from an overborrowed mogul on the brink.

It is the story of the battle to take control of some of the juiciest media assets in Europe, including Germany's biggest TV station and most widely read newspaper. It is the story of a right-wing tycoon calling in favours from a centre-left government as well as his more natural conservative allies to keep the business afloat. It is the tale of grasping football and motor-racing stars and their promoters almost killing the golden goose by demanding too high a price for TV rights.

In the most influential corners of Germany, however, the saga perhaps boils down to three words: Keep Out Murdoch. The real message behind the Kirch affair is the old one about preserving the status quo of cosy Fortress Germany.

What is not in doubt is that the private empire of 75-year-old Kirch, the son of a Bavarian plumber, is teetering near the edge of collapse. As financial advisers plug one hole, another part of the hull springs a leak. This week it emerged that the loss-making pay-TV service had run out of cash. No one knows the total borrowings of the company except Kirch, and he is not saying. Estimates of total debts and liabilities range from e13bn (£7.9bn) to as much as e18bn.

He wants to sell his stake in the newspaper publisher Axel Springer. But Deutsche Bank is first in the queue for e600m of the proceeds and there are dozens of other claims on Kirch's wallet.

One of the biggest creditors is Rupert Murdoch's BSkyB. It has an option which obliges Kirch to buy back its stake in the Kirch pay-TV arm for e1.3bn in October. Earlier this month, Sky wrote down the value of that option to zero, but there is little doubt Murdoch sees it as a lever for wresting cash or other assets from the still twitching body of Kirch. 'This does not change our legal position by one cent and we will pursue our rights in every way possible,' he said at the time.

It is fear of Murdoch in Germany's political and business circles that is driving group restructuring. The anxiety extends to the very top. German Chancellor Gerhard Schroder allegedly attended a secret meeting of big hitters in which tactics were discussed to keep Murdoch from gaining a foothold in the national media.

Der Spiegel, the country's leading and most respected news magazine, ran details of the secret meeting as its main story in a recent edition under the headline 'Conference in a pub'. 'When Kirch goes, Rupert Murdoch comes,' said Der Spiegel. 'Yet the US tycoon should play no role in German publishing. That was the agreement of a secret circle around the Chancellor.'

Allegedly, Deutsche Bank chief Rolf Breuer, Bertelsmann head Thomas Middelhoff and Erich Schumann of publisher WAZ attended the meeting along with Kirch and Schroder.

'Leo Kirch was fighting for his life's work,' said Der Spiegel, 'But if he failed there would be a new order in Germany that no manager and no politician would want, that would give a free hand to one of the most aggressive owners in the world. This would be a horrible adjustment for media managers in Germany to have to make. Murdoch is a man who would unleash a brutal price war.'

Schroder has dabbled in the private sector before, when European Union rules and plain business etiquette dictated otherwise. He rode to the rescue of the troubled Holzmann construction firm nearly three years ago against EU rules and more recently intervened to save a railway yard from closure by its Canadian employers. The response from his spokesman was that the Chancellor 'doesn't hold secret meetings and neither he nor the government is a player in this matter', but there was no definite statement that such a meeting did not take place.

The campaign to keep out Murdoch even crosses party lines. Edmund Stoiber, running on the Conservative ticket against Schroder in September's general election, presents a perfect target at present because the Landesbank in the state of Bavaria where he is president loaned Kirch e2.3bn without the normal risk assessment procedures.

But there are no cross words while Stoiber stays on the same side as the Chancellor on the Kirch issue. The cross-party message seems to be keep Murdoch out, keep the media status quo and keep Germany from rapacious capitalism as long as possible.

The Kirch jewels

Man who avoids the public gaze