Mecom to buy its way to number three in Germany

By Nicola Leske

FRANKFURT, Aug 19 (Reuters) - London-based Mecom Group (MEC.L) is looking for further potential acquisitions in Germany's fragmented newspaper industry as it aims for the number three spot among the country's newspaper publishers.

"The German newspaper market with around 300 regional publishers is very attractive," said Peter Skulimma, former managing director of Mecom's German unit BV Deutsche Zeitungsholding (BVZ) and now head of Mecom's digital strategy. Skulimma declined to be drawn on details, saying merely that there were talks with interested parties but there was nothing concrete for the time being.

The group, which already owns regional newspapers in Hamburg and Berlin, would be interested in papers of a similar size, he said, citing the Saechsische Zeitung as an example.

"There is much more on the market than one would think," Skulimma said in an interview with Reuters.

The paper -- one of the few surviving dailies from former east Germany and based in Dresden -- belongs to publishing house Gruner+Jahr, part of media giant Bertelsmann [BERT.UL].

"I think, however, we will see an acquisition of an online target before we see another print buy because we want to broaden our online portfolio," he said.

BVZ, which is among the top 15 newspaper publishers in the world's fifth largest newspaper market, recently bought online newspaper Netzeitung for an undisclosed sum. Skulimma said Netzeitung will make a profit for the first time by the end of this year.

"But I do not think we will pay the kind of price for a target similar to what has been paid in the past weeks and months," he added.

In July, Stuttgart-based publisher Holtzbrink offered to buy Internet search engine Abacho AG for 56 million euros, or nearly 13 times the online firm's annual sales of 4.4 million euros.

DOMESTIC PUBLISHERS DISADVANTAGED

According to studies by Ernst & Young and A.T. Kearney many small regional publishers will be put up for sale as family-owned papers lack successors keen to continue the business or because they do not have sufficient resources to invest in digitalisation.

This year, Hamburg publishing family Voigt sold its 75 percent stake in Braunschweiger Zeitung to the WAZ group for an estimated 160 million euros.

The country's largest national paper Sueddeutsche Zeitung is expected to be sold as early as this year as well, with the five owners reportedly hoping to fetch up to 1 billion euros.

By 2025, studies forecast 80 to 100 of Germany's regional publishers will disappear.

Unlike other European countries, there are no large newspaper groups in Germany such as the Dutch Telegraaf Media Group or the Mirror Group in Britain.

Its largest publishers are Axel Springer AG, which owns Europe's best-selling daily Bild, the WAZ Mediengruppe and Holtzbrinck. Together they control 30 percent of the market.

There is little room left for large German publishing houses to expand further due to strict laws imposed after World War Two to prevent media concentration.

The fragmented market has attracted foreign interest and financial investors such as Mecom, the investment vehicle of former Mirror chief executive David Montgomery.

Montgomery, known for his fierce cost-cutting measures, has acquired newspapers in Denmark, Norway and the Netherlands, as well as in Poland and Ukraine, striving to build a pan-European newspaper publisher. The strategy is to combine print and online activities across Europe while drawing on the expertise of local managers and editors, Skulimma said.

Despite the increase of online papers and websites, Skulimma is convinced newspapers will not disappear any time soon.

"People will continue to want the tactile experience of a newspaper but content will differ," he said, adding that BVZ is mulling the launch of a Sunday edition of its Berliner Zeitung in Germany's capital, the most competitive regional newspaper market in the country.

It would take a seven-digit sum to make a Sunday paper profitable, Skulimma said.

"Right now, on Sundays, our readers are turning to other papers and that hurts...We will make a final decision in the coming weeks."

((Reporting by Nicola Leske; editing by Paul Gallagher; Reuters messaging: nicola.leske.reuters.com@reuters.net; +49 69 7565 1214)) Keywords: GERMANY MEDIA/

(C) Reuters 2007. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nL10751617