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By | December 13, 2000

      EM.TV & Merchandising, the Munich-based media company whose portfolio of assets includes the evergreen Muppet Show and rights to the sale of Sesame Street, was rescued from almost certain liquidation last week by Leo Kirch.

      Kirch Group will invest $550 million (E617.11m) in EM.TV, in return for 49 per cent ownership in SLEC, the company that owns the rights to Formula 1 motor racing. The German Neuer Markt is still reeling, a week after EM.TV’s stock price fell 40 per cent in a single day (Monday December 4, to E8.30). Earlier this year the stock was touching E120 a share.

      However, investment bankers Morgan Stanley Dean Witter (MSDW), in a December 1 report compiled ahead of EM.TV’s meltdown week, gave some guarded optimism on the outfit’s future. But indicative of the mess that surrounds EM.TV’s finance department, MSDW still forecast operating profits to double this year, and estimated pre-tax profits to fall by 60 per cent. MSDW predicted a “much stronger performance” in 2001 from the Jim Henson Company.

      The “clean desk” approach adopted by a new EM.TV finance team also means the sale of its 45 per cent stake in Tele-Munchen’s TM3 channel that it bought in September 1999. On December 4, EM.TV founder and chairman Thomas Haffa confirmed that Kirch will buy 8 per cent of EM.TV from Haffa and another 16.7 per cent through a capital increase.

      Kirch will also buy the rights to the ‘Junior’ flagship brand of kids programmes. EM.TV also said New York-based Sesame Workshop will acquire the rights to the Sesame Street characters, while EM.TV will hold onto the European merchandising rights.

      Operating profit is expected to total DM 50 million (E25.6 million) this year, compared with an original prediction of DM 525 million, the company said in a statement. Sales will reach DM 1.38 billion, 2.7 per cent less than forecast. “The main reason for the deviation is EM.TV’s failure to reach its sales target, weaker margins and the resulting impact on profit,” it said in the statement. “The liquidity of the group is ensured in spite of the negative profit expectations.”

      Barely two months ago at the beginning of October EM.TV’s then finance director Florian Haffa (brother to chairman Thomas Haffa) delivered an upbeat presentation at Cannes MIPCOM market in the presence of his investment bankers and the CEO of the important German Neuer Markt. They were talking about the spectacular 25,000 per cent share price growth that EM.TV enjoyed since its IPO in October 1997. In March this year EM.TVs price was still around E120.

      But even as Haffa was on his feet in Cannes the problems were already closing in, forcing his resignation as finance director a few days later. The share price had already dropped to around E65, but worse, much worse, was to come. On October 9 EM.TV’s price fell 30 per cent in a single morning (with 20 million shares changing hands) to E40. The collapse has continued to such an extent that EM.TV seems now to have completely lost investor confidence despite some high profile management appointments. On Sunday night (December 3) Florian Haffa resigned from the management board, seemingly the price that had to be paid in a clean-up operation.

      The problem started with an October 9 stock market statement when EM.TV admitted that DM 31.6m of sales for the Jim Henson Company ought not to have been included in its August published interim statement but phased in over the following two quarters. Additionally, its June 30 published figures for EM.TV’s Formula One Group were also overstated in that four months trading were included ahead of time. EMTV says some DM 31.6m will be deducted from its DM 604m in first half sales. The company stressed that the over reporting would have zero affect over the full year because the sales were genuine and would be correctly incorporated within the second half results. Since then the news has not improved. Ten days ago talk of EM.TV’s impending bankruptcy was widespread with reports of new CFO Rolf Rickmeyer having found “previously hidden red ink in the books” which included losses connected with EM.TV’s take over of the Jim Henson Company.

      Nevertheless MSDW’s December 1 comments that “EM.TV is one of Europe’s most important content companies” remains just as true today, with revenues in 1999 standing 30 times higher than in 1994. Next year will be an interesting one for the company and its investors as a new sense of realism takes hold.

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