The merger of Carlton Communications and Granada into a single ITV group is unlikely to receive regulatory approval with a combined sales house, according to Lehman Brothers.
After analysing the OFT’s submission to the DTI, the broker believes that the two companies will struggle to get their merger plans passed without any conciliatory adjustments.
In their (non-public) proposals, Carlton and Granada are claiming that advertising prices will not be raised post-merger and that there is no significant competition between them in London. However, the OFT is concerned about the implications for competition in the general television advertising market, of which Carlton and Granada command over 50%. It is also more specifically concerned about the market in the London region.
Lehman says that if the Competition Commission reaches the same conclusions as the OFT, then a separation of the sales house is likely to be a minimum requirement, with further measures for London a possibility.
A recent article in the Financial Times claimed that the Competition Commission’s chairman, Sir Derek Morris, is looking to test new Enterprise Act proposals which empower the body to attach detailed conditions to mergers and acquisitions. The ITV merger could be subject to these tests and may therefore only be permitted with a set of contingent remedies, such as divestments or regulatory controls, attached to it (see Competition Commission May Attach ‘Remedies’ To ITV Merger).
