Carlton Considers Dropping Out As Countdown To Two-Way ITV Merger Begins
As a three-week countdown to a decision on the future of the UK television industry begins, rumours and expectations are surrounding the big three ITV players. Under Takeover Panel rules, Carlton, United and Granada have three weeks to conduct discussions before declaring their preferred outcome, after Stephen Byers gave the go-ahead for consolidation of ITV franchises last Friday (see Carlton And United Welcome Merger Clearance).
Each side spent the weekend locked in discussions, perusing the small print of the Competition Commission’s 230-page report into consolidation within ITV and mulling over their options. Each of the boards are expected to meet separately this week.
This morning there was speculation that Carlton Communications is planning to abandon its merger with United News & Media, the £9bn proposal which kick-started the battle nine months ago. After spending the weekend locked in talks, Michael Green of Carlton and Lord Hollick of United are believed to have been unable to agree on the terms of their merger deal in the light of the trade secretary’s ruling.
Stephen Byers gave the go-ahead for the two to merge on condition that United sells it Meridian franchise (see DTI Clears Way For ITV Merger). Carlton is understood to be arguing that, without Meridian, the value of the deal has been drastically reduced, while United believes that the combined group will still be a huge player.
The falling-out revolves around Carlton’s increased strength since the proposed nil-premium merger was announced. Then the two companies were of similar size and value and agreed a 52:48 share on the combined group in Carlton’s favour. In the time it has taken the merger proposal to be accepted by the DTI, however, Carlton has increased in value to £4.9bn, leaving United behind at £4.5bn. Thus the terms of the deal are now unequal and it is believed that Green is demanding his shareholders should now receive two-thirds of the combined company.
Granada’s power is also increased, the flotation of its media arm last week allowing it a £2bn warchest (see Granada Media Begins Conditional Trading) and the terms of the consolidation document lie in its favour. It now has to decide whether it will be satisfied with Meridian, or whether it should make a hostile bid for one of its rivals. Ownership of Meridian would allow it control of two of the top four ITV franchises in revenue terms – LWT and Meridian – leaving a combined Carlton-United group with the other two – Carlton TV and Central. Thus Stephen Byers’ desire for the creation of two balanced ITV companies would be seen through.
A bid for United, however, would result in the break-up of the company. Granada would retain control of its Meridian and Anglian franchises but would be obliged to sell off the rest of its newspaper and TV interests, including its stake in Channel 5, in order to remain within the 15% limit on control of the national television audience.
A takeover bid for Carlton, however, would mean Granada disposing of one of the two ITV licences – Carlton or LWT -, one other franchise, and its stake in GMTV in order to come under the 15% rule.
Rumours are also emerging that another player could step forward at this stage. All eyes are on the newly-formed RTL (see Pan-European Broadcaster Announces London Listing Date), which is believed to be interested in gaining full 100% control of Channel 5. The final 35% is owned by United.
Carlton Communications: 020 7663 6363 United News & Media: 020 7921 5000 Granada Media: 020 7620 1620