Following Liberty Global’s acquisition of 6.4% of British broadcaster ITV, Bank of America Merrill Lynch has speculated the potential upside for the international broadcaster if a full take-over were to happen at some point in the future.
Valuing ITV at 250p on a standalone basis, BoAML has estimated that Liberty – which bought BSkyB’s shares of ITV for £481 million last week – could potentially realise tax synergies of £2 billion from offsetting ITV’s profits against Virgin’s capital allowances and US tax losses.
According to the Bank there is also potential for revenue synergies with Liberty using ITV’s channels, content and promotional power to “differentiate its offering.”
Each additional 1% share of the UK triple play market adds approximately £350 million to revenue, which could be worth £1.4 billion, assuming a 50% incremental EBITDA (earnings before interest, tax, depreciation and amortisation). Together this suggests that ITV could be worth more than 300p per share to Liberty.
One of the Bank’s research analysts, Daniel Kerven, said that while Liberty has said it has no plans to bid for the whole of ITV at the time, this does not preclude it from increasing its stake to 29.9%.
Kerven added that Liberty’s acquisition could also impact BT, which is reported to have considered buying ITV in the past.
“If BT believes ITV could make a material difference to Virgin’s market share, then it could potentially respond by taking a blocking stake as Sky did in 2006,” he said.
“If BT wants to realise any benefits from vertical integration itself, then, as speculated in the media, it could make a full bid now while Liberty may lack the financial flexibility to exploit its tax advantage.”
