BSkyB Forces Kirch to the Wall

The Kirch media empire is close to collapse after BSkyB announced yesterday that it was exercising its right to force the German group to buy back a €1.3bn stake in the KirchPayTV subsidiary.

Because there is no way the debt-laden German concern can come up with the price, banking sources said they expected its holding company to file for bankruptcy before the weekend, possibly today.

A statement from BSkyB acknowledged that, in view of Kirch's difficulties, it was "unlikely to receive a significant amount as a result". But by exercising its option it has won a place for itself in the long line of Kirch's creditors, and stands to receive something rather than nothing from the debacle.

Three months ago, the British group announced it had written off almost £1bn of investment in KirchPayTV. BSkyB owns 22 % of the shares in the German firm, which filed for insolvency last week, a holding it acquired in 1999.

BSkyB bought into KirchPayTV on condition that, unless the company was floated, it would be able to sell back its stake to the Kirch group's holding company, Taurus Holdings.

Valued by BSkyB at €1.3bn, this "put option" is the debt-laden Kirch group's biggest single liability, long regarded as the loose stone whose removal could bring down the edifice.

Yesterday's move came as a surprise because the option was widely thought to be exercisable only from October 1. Statements from BSkyB have said that it could be invoked earlier "in certain circumstances", and those circumstances had arisen.

The media empire built up by Munich-based media magnate Leo Kirch consists of a holding company and three subsidiaries. Before last week's insolvency application from KirchPayTV, the company which owns the group's film rights and its main free-to-air TV channels, KirchMedia, had already sought protection from its creditors.

The third subsidiary, wholly owned by the holding company, owns Kirch's most politically sensitive asset, its 40% stake in the Springer publishing house, owner of Germany's biggest-selling tabloid, Bild.