(Corrects format of cross reference in first bullet point)
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* Bears see risks from Bundesliga auction, capital increase
* Bulls see risks priced in
By Maria Sheahan
FRANKFURT, Jan 3 A bidding war over rights to show top-flight German soccer league matches could prove risky for Sky Deutschland.
The German pay-TV broadcaster's stock has lost about a quarter of its value over the past three months on concern that a battle with Deutsche Telekom for Bundesliga rights could hurt profit and that it may need a capital increase soon.
The Bundesliga is Sky Deutschland's main draw.
While bears see the risks as too big to make Sky Deutschland a worthwhile investment at the moment, more bulls are emerging who say that talk of the risk from a rights bidding war is overdone, and that Sky Deutschland's operating performance has become more solid.
Royal Bank of Scotland analysts raised their recommendation on Sky Deutschland stock to "buy" from "hold" on Tuesday, saying they expect the outcome of both the Bundesliga auction and any capital increase to be satisfactory, helping its stock recover.
They also said innovations such as high definition TV and 3D were helping Sky Deutschland, in which News Corp holds a 49.9 percent stake, to gain traction in Germany.
UBS affirmed its "buy" recommendation on Sky Deutschland, saying it expects that the company's business was robust in the fourth quarter and that Deutsche Telekom will bid only for a minority of Bundesliga rights.
"If Deutsche Telekom has high ambitions for its Entertain Sat service... we believe it would be cheaper to buy Sky Deutschland with all its rights and established subscriber base rather than pay 300 million euros or more for the Bundesliga rights," UBS said in a note.
Credit Suisse cut its recommendation on Sky Deutschland stock to "underperform" from "neutral" three weeks ago, saying competition from Deutsche Telekom in the Bundesliga auction could increase the price of these rights, meaning it would take longer than expected for Sky Deutschland to reach breakeven.
"The main reason why Deutsche Telekom might choose to be disruptive is simply that exclusive live Bundesliga rights would significantly improve the differentiation of its triple play offering, particularly versus cable," it said, cutting its target price on the stock to 1 euro from 2.50 euros.
It said it expects Sky Deutschland to have to pay 300 million euros for rights to the 2013/14 Bundesliga season, 9 percent more than before, and 320 million euros for 2014/15.
Sky Deutschland has said it expects to report a 2011 core loss of between 145 million and 175 million euros and has said it will break even when its subscriber base grows to 3.0-3.2 million from 2.9 million at the end of September.
German soccer league DFL is due to announce details of the bidding structure and rules of the Bundesliga tender in the second half of January. ($1 = 0.7703 euros) (Editing by Jodie Ginsberg)