Crunch looms for family owners of Bertelsmann

19th May 2006, Comments 0 comments

19 May 2006, GUETERSLOH, GERMANY - Germany's richest media couple, Reinhard Mohn and wife Liz, turn 85 and 65 respectively at the end of next month - birthdays that would justify special celebration if it were not for a looming threat to their Bertelsmann media empire.

19 May 2006

GUETERSLOH, GERMANY - Germany's richest media couple, Reinhard Mohn and wife Liz, turn 85 and 65 respectively at the end of next month - birthdays that would justify special celebration if it were not for a looming threat to their Bertelsmann media empire.

A Belgian billionaire, Albert Frere, who controls a 25.1-per-cent stake in Bertelsmann through his company Groupe Bruxelles Lambert (GBL), has announced that he will exercise a contractual option to place the shares on the stock market.

Bertelsmann is an international conglomerate with interests in television and film, music, books and magazines. Since its small beginnings it has remained in private hands, and the Mohns want to keep it that way.

The company patriarch and his wife have been huddling for months with group chief executive Gunter Thielen in a search for strategies to stop the group going public. On Monday, the issue comes to a head at the annual general meeting of Bertelsmann AG.

There are only a few shareholders and they always meet in seclusion.

Liz and Reinhard Mohn and their offspring control, via a network of intermediaries, 74.9 per cent of the shares and 75.0 per cent of the voting rights.

Bertelsmann, which has grown over six decades from a tiny publisher of Lutheran hymnbooks into a worldwide empire, regards going public as akin to taking the road to damnation.

Bertelsmann's corporate culture places a high value on ethical principles, particularly of partnership and corporate giving, and the Mohns believe that market pressure for profits would compromise this.

The Brussels investor has the right to instruct Bertelsmann to seek a stock-market listing so he can offload his shares at a market price. The majority owners dread this, but the Mohns cannot parry until Frere has formally demanded a flotation.

At that point they are expected to come up with a counter-offer. Frere, who has been pacified for the past five years with a guaranteed return on investment of 120 million euros annually, could accept such a counter-offer, but does not have to.

The response from the 80-year-old baron, who recently dined with Thielen and Liz Mohn in Brussels "in a harmonious atmosphere" according to spokesmen will largely depend on how much he is offered. The two sides clearly differ on how much he should get.

GBL believes the 25-per-cent stake is worth nearly 5 billion euros, whereas the Mohns believe it is worth little more than 3 billion euros. Both claim support from independent valuations.

The newspaper Financial Times Deutschland reported Friday that Liz Mohn was preparing to approach Frere in the next few weeks with an offer of 3.5 billion to 4.0 billion euros in cash for the shares. Bertelsmann spokesmen declined comment.

Back in January there was a flurry of speculation that Bertelsmann stock would soon be listed. Financial analysts suggested the stock would be so sought after that it would elbow its way in among the elite 30 companies in the Frankfurt Stock Exchange's DAX index.

Other analysts were not so convinced, warning that Bertelsmann remains exposed to a huge lawsuit by other music companies over its involvement in Napster at a time when the peer-to-peer music swapping service was regarded as illegal.

The rivals are seeking 17 billion euros in damages, and analysts say the suit represents a drag on the stock price, even if Bertelsmann, based in the German city of Guetersloh, has a fairly good chance of winning.

GBL obtained the quarter-stake in Bertelsmann during a swap when the German group bought into Europe's biggest private broadcaster, the highly-profitable Luxembourg-based RTL Group. The Mohns are now in a bind as a result.

Even a family of their wealth cannot just whistle up 3 billion euros out of the kitty. That constricts their options.

One way out might be to sell part of the business to raise funds to pay off GBL. But disposing of a unit like BMG Music Publishing, a highly-profitable unit that comes with a 50-per-cent stake in the world's number two music label Sony BMG, would weaken the group.

Alternatively, Bertelsmann could take out loans to buy back GBL's stake, but analysts say this would breach the group's long-nurtured policy against going heavily into debt.

The end game being planned in Guetersloh could involve a mixture of both - a sale and bank credit - provided GBL's Frere does not push his demands over the Mohns' budget. Otherwise a flotation is a distinct prospect.

Bertelsmann will be forced to act fairly fast if there is an IPO, with a date in the first half of next year deemed realistic.

It has said in recent months that it is laying the groundwork for flotation. If it does not seriously continue preparing for an IPO, Frere is entitled to claim compensation in the form of more shares.


Subject: German news

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