German pay-TV broadcaster Premiere staked its future on an ambitious debt restructuring plan, paired with a 450 million euro ($630 million) capital hike which could lead to News Corp becoming its majority owner.
The funds are needed for Premiere to meet its debt obligations, and News Corp - which already owns 25 percent of the company and, observers believe, has ambitions to use it to replicate its UK-based Sky TV broadcasting model in Germany - said it would underwrite the main part of the capital increase.
"The successful implementation of the financing plan is a prerequisite for the survival of Premiere," said Chief Executive Mark Williams, installed by News Corp to turn around the ailing German broadcaster.
But with Premiere haemorrhaging money and predicting it will not turn a profit until 2011, the Murdoch-run media conglomerate said on Tuesday it would only guarantee the cash call if it was exempted from regulations requiring it to launch a full take-over bid if its stake rises above 30 percent. Williams said he expected the two-stage capital increase to be completed before the end of the second quarter of 2009.
The first or smaller tranche will offer up to 10.2 million shares at a minimum price of 3.19 euros, a significant discount to Premiere's share price, which fell 7.2 percent to 3.95 euros at 1355 GMT as traders and analysts questioned whether the recovery plan would succeed.
No pricing was given for the second tranche. Premiere also said it would replace its debt agreements with new long-term facilities for 525 million euros, conditional on the two rights issues. It expected net debt of around 320 million euros at year end from 175.5 million at the end of 2007. Harald Heider at DZ Bank called the plans "reasonable" and said they put an end to the risk of insolvency.
Iris Schaefer, analyst at Landesbank Baden-Wuerttemberg, said the onus remained on what has been a poorly performing company "to prove whether the new business plan can improve operating performance in the current economic environment".
NO PROFIT UNTIL 2011: A Frankfurt-based trader said the low subscription price for the capital increase and Premiere's bleak 2009 and 2010 outlook had dragged down the shares.
News Corp said its commitment to underwriting the second, main tranche of the increase hinged on Germany's financial watchdog BaFin exempting it from regulations obliging it to launch a take-over bid if it crosses the 30 percent threshold.
BaFin, which had no immediate comment, has leeway to waive the regulation if the take-over target is a restructuring case. Williams said he was reasonably confident BaFin would give the case favourable consideration. The EU Commission was not immediately available for comment.
Given Premiere's natural fit with News Corp's stable of pay-TV channels with strong sports content, many observers believe an eventual take-over is likely. Williams said it was theoretically possible News Corp's stake could rise above 50 percent, but this was not currently an issue.
For 2009 the company predicted a negative cash flow of 250 million euros to 275 million and a significant EBITDA (earnings before interest, tax, depreciation and amortisation) loss. It aimed to break even by the end of 2010 and to turn a profit in 2011 and beyond. Premiere's main draw is German premier-league soccer though it also shows movies, documentaries and popular drama series.
With the proceeds of the capital increase, it is planning to make investments in programming, technology and marketing aiming to attract new subscribers to its services. Investment bank Viscardi said the plan "sounds like the old plan" which did not have "any lasting effects on profitability". Lazard advised Premiere on the transaction.
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