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ITV partners set to merge

Brit gov't approves marriage of Carlton, Granada

This article was updated at 5:52 p.m.

LONDON — The British government confirmed Tuesday that it will wave through the £4 billion ($6.4 billion) merger of ITV’s largest shareholders, Carlton and Granada, with relatively few restrictions, making the country’s largest commercial network potentially attractive for would-be U.S. investors.

A unified ITV could be an appealing target for acquisition-hungry media groups.

U.S. billionaire Haim Saban and media congloms like Viacom, Time Warner and Disney have off and on indicated an interest in the commercial web. Most recently, Hallmark Entertianment has been sniffing out the ITV assets.

Given current share prices, however, analysts say ITV is unlikely to be immediately flush with offers.

Investor buzz

Shares in both companies jumped after the news, with Granada up 9% to $1.86 and Carlton up 12.5% to $3.40 at close of trading on the London Stock Exchange.

Deal gives ITV the power to compete more effectively with pubcaster the BBC and Rupert Murdoch’s satcaster BSkyB, which between them have eroded ITV’s aud share.

BSkyB is the fastest-growing TV operation in Blighty and is expected to be substantially larger than the BBC in 2010, when the government plans to switch off the analog terrestrial TV network.

“I am confident that the merged ITV companies will be able to compete more effectively with the BBC, Channel 4 and Five and BSkyB,” said Trade Secretary Patricia Hewitt, who greenlit the merger. “A stronger ITV will be better able to invest in and provide programming of high quality, including regional programs. Broadcasting as a whole will benefit.”

Streamlining its production, distribution and airtime sales houses will save ITV $88 million annually, much of which will be used to improve its $1.4 billion programming budget, slightly less than BBC 1 invests in its content. Digital web ITV 2 also will benefit from extra investment.

Taking field

A bigger programming budget could make the network more competitive in the TV rights market, where ITV has largely been muscled out of Premier League and international soccer coverage by the BBC and BSkyB.

ITV head of programming Nigel Pickard aims to use the extra cash to beef up ITV1’s primetime drama and entertainment shows and strengthen its daytime sked, which has fallen behind a better-resourced BBC1 in recent years.

“ITV is still losing viewers to the BBC,” said Graham Lovelace, media analyst at Lovelacemedia. “Nigel Pickard will want as much of the savings as he can to address the No. 1 priority, daytime TV. You could see the beginning of a fight back against a cash-rich and confident BBC.”

Decision comes as welcome news to Carlton and Granada chiefs Michael Green and Charles Allen, respectively, who have lobbied hard to retain control of their airtime sales business. Combined, the two units control more than half the TV ad market.

Allen will become chief exec of ITV while Green will become chairman.

Preserving competish

To allay advertisers’ fears that ITV would fix prices, the Competition Commission is insisting its merged sales house sell airtime at guaranteed price levels, which would be discounted in line with year-on-year declines in TV ratings.

U.K. media buyers have a month to agree to conditions with the Office of Fair Trading that would protect advertisers by guaranteeing the same rates over a number of years. Media watchdog Ofcom will police the rules, which include a regular auction of airtime.

Layoffs ahead

Staffers are unlikely to be rejoicing at the news.

While there’s already been some layoffs in legal, PR, marketing and transmission, there will be more pinkslips to come.

Although the deal is being presented as a merger, in practice Granada is taking over Carlton, which could mean more casualties for the underdog. Granada will control 68% of the merged ITV, with Carlton owning the remaining 32%, which will rise to 34% if certain targets are met.

“One ITV has been a long time in the making,” Green said. “The new business will have the resources to deliver a winning schedule and a clear focus on being the best and beating the competition. The days of different companies with different agendas working in a 1950s federal system are finally at an end. A new future for ITV starts today.”

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