Murdoch's arrival puts Premiere firmly into play

FRANKFURT (Reuters) - Rupert Murdoch's buying a stake in pay-TV broadcaster Premiere PREGn.DE has cemented the German company's status as a takeover candidate in a saga that hinges on the next auction of Budesliga soccer rights.

Analysts said Murdoch's News Corp NWSa.N will most likely increase its near 15-percent stake to take full control or sell to a third party, such as French media group Vivendi (VIV.PA), whose tentative approach to Premiere was headed off by Murdoch's move.

A source familiar with News Corp's intentions said Murdoch is not now planning to up his Premiere stake, but the market thinks Premiere's days as an independent company are numbered.

Murdoch's second stab at the German TV market was surprising, but this time around he may have the right recipe for success in Europe's largest TV market and one of the world's biggest TV advertising markets.

News Corp was involved in German media mogul Leo Kirch's Kirch Group via its stake in BSkyB (BSY.L) but lost its investment in 2002 when Kirch's businesses faltered.

"The last time News had a stake in the business, management highlighted that a key frustration in the run up to Kirch's bankruptcy was their lack of control," Dresdner Kleinwort said in a note on Tuesday.

"News will likely be determined not to make the same mistake again. This suggests full control is almost certainly its priority in the medium term."

Michael Bahlmann at MM Warburg said it did not make sense for News Corp to buy shares at a 38-percent premium to the market price without gaining a controlling stake or being able to prevent a takeover by a third party.

"We believe the transaction makes Premiere more of a takeover candidate than ever," said Bahlmann, who upgraded the share to "buy" after News Corp's purchase and increased the price target to 17.50 from 16 euros.

Premiere shares gained more than 20 percent after News Corp's buy on Monday. The stock rose 1.7 percent on Tuesday to 15.54 euros by 9:26 a.m. EST.

Germany's only pay-TV satellite broadcaster has a market capitalization of 1.35 billion euros and is valued at around 18 times estimated 2008 earnings. BSkyB trades at around 15 times, according to Reuters Estimates. The sector average is 19 times 2008 earnings.

Bahlmann said he could also envisage News Corp passing its share to BSkyB to foster a takeover by the British TV company, or selling the stake to Vivendi.

SOCCER RIGHTS TO DELIGHT

Rumors have swirled for months that Vivendi was interested in bidding for Premiere for a price of up to 18 euros per share. Vivendi has declined to comment.

"News' move puts the spotlight squarely on their French rivals -- either Vivendi makes an offer now, which a 15 percent cannot block, or it walks away. Neither can be ruled out," analysts at Dresdner Kleinwort said.

According to an industry source, Vivendi had its finger in the pie but Murdoch managed to spoil the French company's plans to buy into Premiere.

A financial source said Vivendi's pay-TV unit Canal Plus had been in talks to buy a stake in Premiere.

But News Corp, Vivendi or any other party is unlikely to try and snap up Premiere stock before an auction that decides who gets to show premier league soccer games live in Germany.

Pay-TV is a difficult business in Germany where viewers have more than 30 free programs to choose from and are reluctant to pay extra -- with the exception of soccer games.

Premiere offers Hollywood movies, documentaries, hit dramas and pornography but its fortune depends largely on its ability to show live games of Germany's most popular sport.

The auction to grant rights to the soccer games was originally scheduled for the end of 2007 but has been delayed to the first quarter of 2008.

The delay prompted Premiere to scrap its 2008 outlook due to uncertainty over subscriber figures.

Most sector experts agree Premiere is the only credible bidder for the Bundesliga rights and that News Corp's financial power may help secure the rights.

Analysts at UBS see Premiere shares gaining if the group manages to negotiate a more exclusive contract than before.

"We value Premiere at 23 euros based on the current rights structure, 9 euros should it lose all of the rights and more than 30 euros with increased exclusivity," UBS said.

In 2005 Premiere lost out to cable operator Unitymedia, whose division arena won the auction. The companies later reached an accord that let Premiere show the games. In return Unitymedia received 16.4 million shares in Premiere, which it then sold to News Corp for 278 million euros.

(Additional reporting by Jens Hack; Editing by David Cowell)