Germany's Bertelsmann targets UK media companies with £6bn war chest

Bertelsmann, the German media giant, is looking to go on a spending spree, with EMI still on its shopping list and DM20bn (£6.3bn) due to flow into its coffers from disposals.

The highly ambitious private company is in a fortunate position, being cash rich and in expansionist mode just as rivals are suffering from a severe downturn in earnings. Its existing assets include Europe's leading broadcast group RTL, the music label BMG, and Random House books.

Bertelsmann's priority is to grow its television and music interests and this could see it renew interest in the UK music major EMI. In television, it is looking to buy out United Business Media's minority stake in Channel 5 and Pearson's minority interest in RTL. It is also eyeing the main ITV companies, Carlton and Granada.

In the US, it is looking to grow its Gruner + Jahr magazine publishing business.

It is believed that Bertelsmann has already held exploratory talks with Carlton. Current media rules mean that it could buy Carlton despite its ownership of most of Channel 5 (via RTL) and still remain under the 15 per cent audience share limit. By 2003 or 2004, planned media law changes mean that ITV and Channel 5 will not be permitted to have the same owner, so Bertelsmann would have to chose between the two by then.

Although Bertelsmann's bid for EMI was thrown out by European regulators last year, the German company took heart from the fact that Brussels said that, if such a deal was structured in a way to create another music major – by spinning off part of the combined group – it could be cleared. Bertelsmann sources said it definitely remained interested in the beleaguered EMI.

Bertelsmann is not immune to the advertising and music sales downturn which has hit the entire sector. But it still has the firepower to expand by cashing in past investments. The company's 50 per cent stake in AOL Europe will bring it DM14.6bn – a put option to sell this holding can be exercised from 15 December. Added to this is the DM3bn divestment of MediaWays, a German internet services company, and DM2.5bn from the sale of AOL Inc shares.

In the first half of next year, Bertelsmann will be sitting on a huge cash pile, which could be leveraged to increase its war chest still further. The plan is to expand ahead of a public flotation scheduled for 2004. Analysts believe that the current pains of the media sector will present plenty of targets.

However, the company will not rush out and spend the cash just for the sake of expanding. A senior Bertelsmann executive said: "It's easier to make the money than spend it."