Hostile negotiations

Granada eyes takeover of United or Carlton

LONDON — Granada Group has announced that it is considering a hostile takeover bid for either Carlton Communications or United News & Media.

The move would be an attempt to derail the $6.5 billion merger, which is awaiting regulatory clearance, of its two ITV rivals.

Granada has now requested permission from the Office of Fair Trading to buy either Carlton or United, although it has not said which is the preferred target.

However, sources suggest that Granada has been focusing its attention on United since the merger was announced Nov. 26. A bid for United, whose ITV stations are smaller than Carlton’s, would offer fewer regulatory hurdles for Granada.

Dominant trio

Granada, Carlton and United are the three dominant players in the ITV network, the U.K.’s leading commercial web. Granada owns four regional stations, while Carlton and United hold three apiece.

Just seven years ago, the web comprised 16 separate companies, but the progressive relaxation of takeover rules has led to the emergence of the big three.

Current OFT rules prevent one broadcaster from controlling more than 25% of U.K. TV advertising revenues. Any combination of Granada, Carlton or United would breach that limit. But the OFT is in the midst of reviewing the ceiling, and is widely expected to raise it.

Carlton and United preempted this decision by announcing their merger plans. Granada has declared that it will wait until the OFT completes its review. That decision is expected in February.

However, Granada is also pushing for the OFT to refer the Carlton/United merger to the Competition Commission, which could delay matters another six months.

At the forefront

Granada itself has long predicted that ITV would eventually become a single company, and has stated its intention to be at the forefront of this consolidation.

Granada, which also has an extensive hotel and restaurant business, has considerably deeper pockets than its two ITV rivals. Granada’s market value is $17 billion, compared with $5.9 billion for Carlton and $6.3 billion for United.

Granada’s other big advantage in a hostile bidding war is that its chairman Gerry Robinson and chief exec Charles Allen are much more highly rated by City of London investors than either Carlton chairman Michael Green or United chief exec Clive Hollick.

Also, the terms of the Carlton/United merger placed no premium on either company, making both vulnerable to an aggressive hostile bid. Some analysts are predicting that Euro players such as CLT/Ufa, TF1 and Mediaset may yet enter the fray.

Responding to Granada’s announcement, Green said, “Carlton/United consolidates ITV and creates a world-class media business. Granada’s statement endorses the logic of our agreed merger. Imitation is the greatest form of flattery.”

Perhaps the biggest obstacle facing Granada is the legal restriction, under the Broadcasting Act, that prevents any broadcaster having more than 15% of the U.K. audience. Carlton/United would have 14.9%, but Granada would breach that limit by taking over either company.

In its statement, Granada indicated that “in making any offer, it would be willing to take such action as may be required to comply with the Broadcasting Act” — in other words, by selling off some stations.

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