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Former Bertelsmann chief defends achievements

Thomas Middelhoff says an IPO is still the company's best strategy, despite reluctance from the old guard that led to his ouster.

German media giant Bertelsmann must pursue a broad public offering to remain competitive, the company's former chief executive said Thursday in a televised interview.

"I am convinced that, even if the stock market climate is currently bad, the management has to have enough flexibility to continue the group's mid- and long-term development through an IPO," Thomas Middelhoff told German public channel ARD.

Tensions over the IPO plans led to Middelhoff's surprise ouster Sunday, Middelhoff said. The Mohn family, which owns 75 percent of Bertelsmann, was opposed to a sale of its shares, sparking a disagreement that ultimately led Middelhoff to offer his resignation, he added.

"Shareholders had mid- and long-term development prospects that were different from mine," Middelhoff said. "In this context, I had no choice but to resign."

During his tenure, Middelhoff embarked on a series of acquisitions and investments, making him one of a trio of media giant executives to place big bets on the Internet, only to see disappointing results when the dot-com bubble burst.

One early investment in AOL Europe netted the company some $7 billion, but others fared less well.

Efforts to expand Bertelsmann's music business, for example, led it into a risky investment in file-swapping service Napster that cost more than $100 million with little to no show. More costly still was a deal involving independent record label Zomba, which recently exercised its right to force Bertelsmann to acquire it for some $3 billion, depleting its cash reserves.

On Thursday, Middelhoff defended his strategy and achievements.

"Bertelsmann is perfectly fine, it is the only media group that has no problems whatsoever," he said, alluding to rivals such as AOL Time Warner and Vivendi Universal, both of which have suffered steep stock price declines in the past year. The group is set to reveal half-year results of $3 billion.

The change in regime has set the company on a decidedly more conservative course.

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Middelhoff's exit from Bertelsmann all
but cements old guard victory

The company will not pursue the broad public offering Middelhoff had pressed for. Middelhoff's successor, Gunther Thielen, told employees in a letter this week that the shares owned by the Mohn family won't be floated. According to Thielen, only 25 percent of the capital will be subject to an IPO. That stake was sold previously to Group Bruxelles Lambert, which has the right to float its shares by 2005.

In the letter, the new chief also indicated that Bertelsmann debts were too high. To correct this, a more conservative policy will be conducted and Bertelsmann will concentrate on the assets it already owns, short-cutting Middelhoff's high-flying strategy of acquisitions. Thielen added that the company does not plan to implement a cost-reduction plan, however, which could hinder the group's growth.

In the interview, Middelhoff declined to speculate on what may happen to Napster, the music platform he had backed over the objections of executives in the BMG Entertainment music division. "This platform could be essential to sell digital content to consumers," he said, "but it is up to my successor to decide what to do with Napster."

Middelhoff said he plans to take time off with his wife and five children but declined to comment specifically on his long-term plans.

According to published reports, AOL Time Warner has approached him to head up its America Online division, although the company has also been looking at other candidates.

"I could see myself working abroad or even in another continent," he answered with a smile, when asked about the possibility of joining the beleaguered online giant.

ZDNet France's Estelle Dumout reported from Paris.