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. Last Updated: 07/27/2016

Media Giants Set for Battle in Germany

LONDON / MUNICH -- Axel Springer may be about to challenge Bertelsmann's dominance of Germany's 19.6 billion-euro ($23.7 billion) advertising market.

The Berlin-based publisher is in talks to take control of ProSiebenSat.1 Media, Germany's largest private broadcaster, people familiar with the matter say.

Springer would be able to bundle ProSiebenSat.1's programming, such as "Desperate Housewives," with its Bild tabloid and magazines to win more ad revenue.

Bertelsmann owns RTL Group, Europe's No. 1 broadcaster, and Gruner & Jahr, Europe's biggest magazine publisher.

"This deal would be a big bang that brings Springer face to face with Bertelsmann in Germany," said Juergen Blomenkamp, CEO of MediaCom, Germany's biggest ad-buying agency and a unit of WPP Group, the world's No. 2 ad company.

Since taking charge at Springer in 2002, Chief Executive Officer Mathias Doepfner, 42, a former journalist, has beaten established competitors in new markets.

The company's Fakt tabloid became Poland's most-read newspaper two months after its October 2003 debut. Doepfner more than doubled Springer's profit in the past two years to 142.9 million euros by cutting jobs and selling such units as book publisher Ullstein Heyne List.

"Poland shows that Springer has a very fine feeling for what readers and advertising customers want," said Tom Shrager, a managing director at New York-based fund manager Tweedy Browne, which owns 7 percent of Springer. "Regardless of what issue he tackles, Mathias is one of those people who always wants to win." Shrager said Tweedy Browne would support an offer for ProSiebenSat.1 if the price was right.

Shares of Springer and ProSiebenSat.1, based near Munich in the town of Unterfoehring, have outperformed those of European competitors this year. Springer's shares have gained 8.6 percent to 94.50 euros. ProSiebenSat.1 has added 11.8 percent to 15.09 euros, valuing the company at 3.3 billion euros.

The 30-member Bloomberg Europe Media Index has fallen 2.7 percent.

Bertelsmann dwarfed Springer with net income of 1.03 billion euros last year on sales of 17 billion euros. The Guetersloh, Germany-based owner of book publisher Random House is not publicly traded.

In Germany, Bertelsmann generated 5 billion euros of sales in 2004, while Springer and ProSiebenSat.1 had combined revenue of about 3.8 billion euros.

"With a takeover, Springer would boost its economic and political influence and become a real challenger to Bertelsmann in Germany," said Thomas Grillenberger, an analyst at Bayerische Landesbank in Munich who has a "market weight" rating on ProSiebenSat.1 shares.

Springer is in discussions with the private-equity investors who control ProSiebenSat.1, led by U.S. billionaire Haim Saban, about raising its stake or buying the broadcaster, according to the people familiar. Edda Fels, Katja Pichler and Christof Schramm, the representatives for Axel Springer, ProSiebenSat.1 and Saban respectively, would not comment.

Los Angeles-based Saban, 61, made his fortune with the Power Rangers TV series. He has helped boost the amount of U.S. programming that ProSiebenSat.1 shows since taking over in 2003 as part of the insolvency of Leo Kirch's media empire.

In the first half, ProSiebenSat.1 broadcast eight of the 10 feature films most watched by 14- to 49-year-olds. All but one of the eight were U.S. films, including "Men in Black II" and "Spiderman."

That helped boost the company's share of the age group most sought by advertisers by 1 percentage point to 30.5 percent. RTL Group's share of the 14 to 49 age bracket dropped 0.6 percentage point to 32.3 percent in the same period, according to Nuremberg-based market researcher GfK AG.

"If you love the series 'Desperate Housewives' or 'Sex and the City,' then ProSieben is your definite choice," said Eva Herzog, 31, a Berlin hairdresser. "U.S. series are almost always funnier and more glamorous than their German counterparts."

A takeover of ProSiebenSat.1 would be the biggest move yet for Doepfner, Springer's CEO since 2002. In that position, he has established dozens of new publications in eastern Europe, an area Bertelsmann also targets for expansion.

In Poland, Springer's Fakt tabloid sells for just 1 zloty (30 cents) and has a circulation of 525,000. The paper offers a formula of human interest, celebrity talk and sports used by Bild, whose German circulation stands at 3.7 million.

"People buy Fakt first because it's cheap and second because it's full of gossip," said Jakub Przyczyna, 27, who runs a newsstand in central Warsaw. He said he sold out of his 15 copies of Fakt by 10 a.m. Bertelsmann recently cut the cover price of its Polish women's magazine Naj to 1 zloty from 2.20 zloty.

Springer's aggressive style in Poland, where there are few legal restrictions on pricing and other marketing tactics, has helped force permanent price cuts across the market, said Oliver Voigt, head of Polish operations for Gruner & Jahr, a Bertelsmann unit.

"It allows publishers to play very aggressively and hardball," he said. "Springer made 1 zloty the most popular price of all."

Doepfner, who studied musicology and theatrical arts in Frankfurt and Boston in the 1980s, has not always met with success. He edited weekly newspaper Wochenpost from 1994 to 1996. The publication was shut the same year after Doepfner's departure when it failed to meet financial targets.

He then edited the tabloid Hamburger Morgenpost and moved on to Springer's daily Die Welt, serving as editor in chief from 1998 to 2000.

Springer was founded in 1946 by Axel Springer, a staunch anti-communist.

As many businesses left West Berlin, Springer completed the company's headquarters overlooking the Berlin Wall, a block away from Checkpoint Charlie.

In 1967, Axel Springer wrote a set of guiding principles for the company, such as supporting liberty and law in Germany, "a country belonging to the Western family of nations."

Since Springer's death in 1985, his widow, Friede Springer, 62, has controlled the company, and currently holds 60 percent of its stock.

Only 9 percent of Springer's shares are not owned by long-term investors in the company. Usually fewer than 1,000 Springer shares are traded on German exchanges each day.