Axel Springer, the German publishing group, reported recently a rise in second quarter earnings, which it said showed it was "ideally prepared" for its planned take-over of ProSiebenSat1, the commercial television broadcaster.
Springer announced earlier it was buying out the US private equity investors who secured control of ProSieben in 2003, in an ambitious deal to transform it into a print-and-TV hybrid with a combined turnover of euro 4.2bn ($5.1bn).
Springer's own precarious financial situation two years ago meant it was unable to bid for ProSieben at the time.
Cost-cuts and product launches have since returned the group to profitability and allowed it to buck the dismal advertising climate in Germany.
"Having again reported higher earnings for the first half of 2005, Axel Springer is ideally prepared for the planned acquisition of ProSiebenSat1," Mathias Döpfner, chief executive, said.
Springer, best known for its best-selling Bild tabloid, reported an 11 per cent increase in earnings before interest, tax and amortisation, adjusted for one-off items, to euro 92.3m. Sales grew 2.3 per cent to euro 615m.
Advertising revenues in the core newspaper business rose 3.4 per cent, helping to compensate for revenue weakness in magazines.
Springer hopes the acquisition of ProSieben will create a more diversified group positioned to benefit from any advertising recovery. The offer to the US investors, plus a tender offer for outstanding preference shares, will cost Springer up to euro 4.2bn, making it the biggest deal in the German media market in years.
Analysts caution that the size of the debt-financed transaction bears substantial risks. In particular, Germany's feeble economy and high unemployment mean an advertising upturn remains elusive.
Springer struck lately a cautious note, saying "the advertising market is not expected to experience a firm recovery, despite the growth of gross advertising revenues in the first half of the year. A lasting trend reversal in the advertising market is not expected until 2006. "
Mr Döpfner stressed the transaction was devised in such a way that Springer could manage the financing and retain enough cash for investments even if advertising remained flat.
And although Springer says it does not need to make disposals to finance the deal, it is keeping the door open to selling non-core assets: for example real estate.
Meanwhile, Springer also has to overcome cartel authority concerns and faces an in-depth investigation lasting several months.
Springer's decidedly conservative roots and the influence of publications such as Bild on the German public mean there are particular sensitivities in the country about its planned expansion.
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