Moving fast has become a necessity for Bertelsmann in its quest to survive the global media wars. Ever since two giant mergers last year—AOL's takeover of Time Warner and the purchase of Universal Studios by French media company Vivendi—Bertelsmann has been under pressure to bulk up. Not only has the group acquired control of RTL, which has TV and radio properties in 11 countries, but it is also bidding for the record company EMI and forging a global alliance between Bertelsmann music subsidiary BMG and Napster, the controversial Internet site where people can exchange music for free.
Now Bertelsmann gains a new currency to make acquisitions: its own shares. The 166-year-old company, owner of Random House publishers in the U.S., book clubs in Europe and a stable of newspapers and magazines worldwide, has always been privately owned by the reclusive Mohn family. Under the terms of the latest deal, however, Bertelsmann is acquiring 30% of RTL's shares—it already owns 37%—from Groupe Bruxelles Lambert, a Belgian investment firm owned by billionaires Albert Frre and Paul Desmarais. Instead of cash, GBL agreed to take 25.1% of Bertelsmann shares. More importantly, the deal allows GBL to sell its shares on the stock market in three years, the first time Bertelsmann stock will be available to the public. "The dogma is broken," said Bertelsmann ceo Thomas Middelhoff, who engineered the RTL purchase.
Lately Bertelsmann has been reorganizing its online assets. This month the company sold its Broadband Group to RTL for $12 million. RTL is already established on the Net; now it gets Bertelsmann's programming heft as well."It doesn't matter whether consumers access over mobile phones, their car, their home stereos, television or their personal computers," says Andreas Schmidt, Bertelsmann eCommerce chief. "We want to be able to offer our full catalog anytime anywhere."
That strategy helps explain why Bertelsmann is teaming with Napster, angering other established record companies that have taken the Internet service to court for copyright infringement. While details haven't been finalized, Bertelsmann is close to announcing a technical solution that will allow Napster to charge a monthly subscription fee in exchange for legal access to record company music. Similar solutions will have to be worked out for content transferred to set-top boxes and mobile phones, as well. "What we have to realize is that it is easier to steal intellectual property than it is to get legal access to it," Schmidt says. A big hurdle facing content providers like Bertelsmann is a lack of industry-wide standards for encoding music files to screen out unauthorized users.
What next? The RTL stock swap left intact a cash horde of more than $10 billion, which Bertelsmann earned from its sale of stock in AOL after the online service announced its merger with Time Warner (TIME's parent). Though global in outlook, Bertelsmann has relatively few broadcast and Internet assets in North America, so the German giant could soon be trolling for bargains among companies that have been bloodied by the precipitous fall of the U.S. high-tech stock market nasdaq. The RTL deal also provided outsiders an intriguing glimpse into Bertelsmann's finances. Company officials say the in-house price attributed to the RTL share swap was $9 billion, roughly a 100% premium over the actual stock market valuation of RTL's shares. Using that figure, it means that Bertelsmann values itself at around $36 billion.
The Mohn family, which controls the company through a Bertelsmann foundation, evidently now thinks it makes good business sense to have a portion of its shares traded on the stock market. But that doesn't mean they are surrendering control or expecting to change what they describe as Bertelsmann's"unique corporate culture." While GBL gets two seats on Bertelsmann's supervisory board, the firm had to settle for just 25% of the voting rights, .1% less than a blocking veto. Even Bertelsmann is not ready to move that fast.
With reporting by Jennifer L. Schenker/Paris