Bertelsmann Completes Legal Change to Open up Investor Options

Thomas Rabe - PR Head Shot - H - 2011

The German media giant, which controls "American Idol" producer FremantleMedia and European broadcast giant RTL Group, could pursue an IPO, among other things.

COLOGNE, Germany - Bertelsmann has completed a legal change that could have a major impact on the German media giant, which controls European broadcaster RTL Group and production powerhouse FremantleMedia, maker of American Idol and The X Factor.

Bertelsmann is now a so-called KGaA, a partnership limited by shares. The new structure will allow Bertelsmann to issue stock and take on new investors without diluting the power of the Mohn family, which controls the media group. Industry observers have long thought that the company could look at an IPO to raise money to more aggressively pursue its growth goals as long as the Mohn family can stay in control.

While it appears merely a technical shift - Bertelsmann called the conversion an "identity-preserving change of legal form" - it is being viewed by many as a major move for the traditional media group. Bertelsmann's new CEO, Thomas Rabe, has said the company's focus over the coming years needs to shift from its core markets in Western Europe, where growth is slowing, to the high-growth territories in Asia and South America.

Rabe also wants to boost Bertelsmann's digital business. Many analysts view the company as too dependent on old media - particularly commercial television and print advertising - for its revenues. Book sales through its Random House division or licensing revenue from FremantleMedia provides slimmer profit margins than faster-growth digital businesses, such as e-book sales or online VOD platforms.

Revenues last year were up slightly at around $19 billion (€15.3 billion), but profits attributable to Bertelsmann shareholders were down more than $15 million to $574 million (€465 million).

If Bertelsmann is to push through Rabe's ambitious plans, the company will need capital. Its new legal structure should make it easier for the group to access international capital markets and investors without giving up much control - something the Mohn family has been loath to do.