ITV Merger Likely To Be Watered Down, Says Lehman Brothers
The long awaited merger of ITV giants Carlton and Granada will have little impact if the two companies are forced to divest their sales houses, according to analysts at Lehman Brothers.
The management of Carlton and Granada regard a unified sales house as a key element of the merger and have rejected various compromise proposals (see ITV Merger In Jeopardy As Remedies Are Rejected). Lehman Brothers backs their stance, arguing that a double divestment would be counter productive and “the potential damage to ITV’s advertising revenues and the business risk taken on more than outweigh the merger benefits.”
However, such is the level of opposition to a single sales house that dispossesion is seen as the most likely recommendation of the DTI’s investigation into the merger (50-60% chance). Lehman believes that there is a 30% chance of a behavioiural remedy while there is an outside possibility that the deal will be blocked outright (<10% chance).
The two ITV companies assert that the merger will enable them to save £55 million a year if they can keep their sales houses but only £35 million if they are forced to sell them (see Granada Dismisses Elstein’s Merger Savings Calculations). They also claim that divestment would be a regressive step that would only succeed in making ITV more disfunctional.
However, industry observers feel that the merger will go ahead even if Carlton and Granada are forced to offload their sales houses as there are benefits to be accrued from combining transmission and streamlining operations (see Sales House Divestment Will Not Halt ITV Merger).
Lehman estimates that a merged ITV would be worth 130p per share if the deal goes through with only a behavioural remedy. Benign conditions on sales house divestment would reduce this to 125p but harsh terms see downside to 100p or less.
Shares in Carlton and Granada were down marginally at 174.75p and 104.75p respectively by mid-afternoon today.
