Companies working out deal to merge

LONDON — Blighty’s biggest commercial television groups Granada and Carlton — the two major stakeholders in the struggling ITV network — are once again in serious merger talks.

The rivals told the Stock Exchange late Thursday that they are trying to cobble together a single ITV company that would be worth some £2.7 billion ($4.22 billion).

The news took the City and many media observers by surprise since talks of a combo ended six months ago in acrimony. Relations between the two further soured after the collapse of their high-tech joint venture ITV Digital in summer.

The proposed tie-up amounts to a takeover by Granada, which is capitalized at twice the value of Carlton, and the deal will face regulatory hurdles.

It is part of a growing trend toward consolidation in the European media biz. ITV formerly was a loose federation of some 16 regional license-holders. Now Carlton and Granada own the lion’s share of those, including the two London licenses, with SMG and Ulster as smaller broadcasters and license holders..

If the knot is tied, Granada shareholders would own 68% of the new entity, while Carlton shareholders could see their 32% stake rise to 34% if certain earnings targets are met.

Pressure to reconcile

However, a merger cannot be completed until Parliament approves the government’s draft Communications Bill, which is likely to revoke the ban on owning more than 15% of the commercial TV audience when it is introduced at the end of next year.

Broadcasters in Britain are also prohibited from controlling more than 50% of the TV ad pie: The two now account for 55%.

It’s unclear how the merger will affect another provision of the draft law, which if passed would allow American companies to make takeover bids for either ITV stations or for Channel 5.

The two groups have been under growing pressure to iron out their differences because of the stubborn recession, a drop in ad revenues and audience share and recent management missteps.

Most notably, Channel 5′s high-flying topper Dawn Airey turned down a top job at ITV and opted instead for Rupert Murdoch’s satcaster BSkyB, brightening the spotlight on ITV’s troubled executive suites.

If the merger goes through, Carlton’s longtime chairman Michael Green will become chair of the new entity and Granada’s chairman Charles Allen will become chief exec. Green founded Carlton as a printing operation two decades ago and has many other private investments; Allen worked alongside former Granada topper Gerry Robinson in expanding the company to include the London Weekend TV franchise and to buy a hotel chain.

Allen told the British papers on Friday that the consolidation would make ITV “more competitive in an increasingly competitive market.” Green said delay is “not in the best interests of viewers, advertisers, stakeholders or the future of British broadcasting.”

The two companies hope that a merger will enable them to breathe new life into the channel and create savings estimated at $75 million per year which they say they will reinvest in program production. Right now the ITV network is looking for a replacement for its director of channels David Liddiment, who has said he will step down in December.

Layoffs looming

Detractors were quick to point out, however, that there would likely be noticeable layoffs at the top companies and that one of the two advertising sales operations would probably have to be spun off to pass regulatory muster. Granada employs 5,000, Carlton about 1,500.

Not surprisingly, neither of ITV’s main rivals, the BBC nor Channel 4, reacted positively to the merger plan.

Some analysts suggested that a merger was indeed inevitable but doubted whether Green, 53, and Allen, 44, are the answers to ITV’s long-term future. Both have seen their reputations tarnished by the implosion of ITV Digital and the slump in their respective stock prices. In programming terms, both the BBC and Channel Five have gained ground at ITV’s expense.

Better liked apparently by the City is Carlton’s chief executive Gerry Murphy, 46, but he has not been given a role in the new entity and is expected to ankle to work in an unrelated business.

Granada is the company behind such successes as “Brideshead Revisited,” “Prime Suspect” and, more recently, “Cold Feet”; Carlton is the producer of “Inspector Morse,” “Crossroads” and “Survivor.”

Stateside Granada has tried to launch formats into the American market with moderate results. Carlton’s American subsidiary Carlton America produces and distributes telepics for U.S. outlets and the international market. Both companies make money selling their completed shows to foreign broadcasters, though so far not as successfully as the BBC.

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