New Law Could Help a Bertelsmann Buyout of RTL

Thomas Rabe - PR Head Shot - H - 2011

A change to a Luxembourg law would make it easier for the German media giant to squeeze out minority shareholders of Europe's largest broadcaster.

COLOGNE, Germany – A change to the law governing takeovers in the tiny European nation of Luxembourg could be big news global media giant Bertelsmann – allowing it to fulfill its years-long ambition to take full control of Europe's number one broadcaster, RTL Group.

Revised takeover rules, which took effect this month, allow owners of more than 95 percent of a publicly traded Luxembourg company to squeeze out minority shareholders by forcing them to take a “fair price” buyout. Bertelsmann currently holds 92.3 percent of Luxembourg-based RTL. A buyout would give Bertelsmann full control over RTL's annual cash flow of some $1.3 billion (€1 billion) – money Bertelsmann desperately needs if it is to finance its ambitious international expansion plans.

“The new takeover law introducing a clear rule for the squeezing out of minority shareholders is a game-changer,” Margo Joris, an analyst at KBC Securities in Brussels told Bloomberg News. “The law now offers Bertelsmann the possibility to take RTL private."

If Bertelsmann took full control of RTL, it could also give the German conglomerate more options as it considers a initial public offering. Last year, RTL, which had a net income of $900 million (€696 million) last year, accounted for some 60 percent of Bertelsmann's total earnings before interest and taxes.

Bertelsmann recently changed its legal structure, a move interpreted by many as a first step towards an IPO for the group, which is privately controlled by the Mohn Family. The Mohns, descendants of company founder Carl Bertelsmann, have in the past resisted taking the company public.

Last month, Bertelsmann CEO Thomas Rabe presented the company's growth strategy, which would see Bertelsmann shift focus from the low-growth territories of Western Europe, to emerging markets in Asia and North America as well as putting a greater focus on digital businesses and content production. Bertelsmann has not said how it plans to finance this shift – which will likely involve a number of acquisitions. Rabe recently acknowledged that the company does not have “the skills required to benefit from the digital age."

In July, Bertelsmann issued 10-year bonds worth $969 million (€750 million). The company currently hold around $4.65 billion (€3.6 billion) in debt.

Bertelsmann has twice – in 2002 and 2007 – moved to take full control of RTL but withdrew both times. In 2002 a Luxembourg shareholder group rejected Bertelsmann's buyout offer as too low while uncertainty about the country's takeover laws torpedoed the 2007 attempt.

Under the new law, Bertelsmann could buy up the remaining 1.94 percent of RTL shares it requires to cross the 95 percent threshold. An independent advisor would then set a fair price for the remaining shares, a price minority shareholders would be required to accept.

Another option open to Bertelsmann would be to sell RTL shares to finance its global expansion, something the company has hinted at in the past. For its part, Bertelsmann only says it is “keeping all options open” regarding its stake in RTL.