Bertelsmann, the giant German media group, plans a fundamental review of its publishing, entertainment and media operations following the abrupt departure of chief executive Mr Thomas Middelhoff.
Mr Gunter Thielen, the new chairman and chief executive, has ordered the review following a sharp fall in the profitability of units including Random House and the BMG music operations.
Random House, BMG and DirectGroup, Bertelsmann's book club business, have all incurred significant losses in the past year.
It is understood that Bertelsmann could reconsider its ownership of several US operations including internet music service Napster and US magazines at Gruner+Jahr, its magazine publishing arm.
"He is going to look at every business that is not profitable, and will make some tough decisions," one insider said.
Officials said the company was not facing a liquidity crunch, even though it is facing an estimated $3 billion (€3.1 billion) payment for control of US music business Zomba.
The company last week postponed a $733 million to $977 million bond issue citing weak market conditions.
The review is also expected to scrutinise Bertelsmann's British assets, dominated by a 65 per cent stake in commercial broadcaster Channel 5.
Industry analysts questioned whether the company would retain that holding, reiterating that proposed new media rules in Britain could pave the way for a takeover bid by Mr Rupert Murdoch's News Corporation.
Details of the review emerged as Mr Middelhoff was negotiating a separation package expected to be one of the most generous seen in German industry.
Mr Middelhoff, 49, is thought to have received a basic salary of more than €8 million last year, which was boosted to about €20 million following a series of incentive payments linked to Bertelsmann's past performance. The pay-out is expected to reflect the terms of a new five-year contract that Mr Middelhoff was negotiating before his resignation.
His departure, agreed by the supervisory board and the secretive Mohn family foundation controlling Bertelsmann, is expected to lead to other management changes.
The future of Mr Ewald Walgenbach, the 43-year-old chief operating officer and recognised as a Middelhoff ally, was said to be in doubt.
Yesterday, the company said Mr Joel Klein, chairman and chief executive of the group's US operations, was also leaving.
Mr Klein only joined the media group early last year, after four years at the US justice department's antitrust division, where he oversaw the government's case against Microsoft.
Bertelsmann insisted his departure - to take over the running of New York's schools department - was not linked to Mr Middelhoff's resignation.
The departures, nevertheless, prompted suggestions that Bertelsmann would be scaling back its ambitions.
- (Financial Times Service)
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