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SMG puts Pearl & Dean on the block

Group owns Scottish-based ITV licenses, Ginger, Virgin Radio

LONDON — U.K. media operator SMG, which has put its cinema advertising business, Pearl & Dean, up for sale, may become the target of a merger or a bid following a dramatic fall in its stock price.

At one point Friday, SMG’s stock fell by more than a quarter following a profits warning and a statement that said, “The group is in discussions with its banks in relation to a potential breach of certain of its financial covenants.”

SMG, owner of two Scottish-based ITV licenses, production combo Ginger and Virgin Radio, warned that the slack advertising market hitting all of Blighty’s commercial TV combos would lead to a big dent in profits.

“Broadcast markets have weakened significantly during the second half of 2006, with ITV1 and cinema revenues being particularly affected in the fourth quarter,” according to a statement.

It has been a turbulent few months for SMG, without a CEO since Andrew Flanagan was ousted in July.

SMG, the subject of an abortive merger with Belfast-based ITV combo UTV, earlier this fall, said it had received “a significant number of expressions of interest” in offloading Pearl & Dean and outdoor advertising division Primesight, also on the market.

Company also indicated the search for a successor to Flanagan was well under way.

In London, there was speculation that UTV and other entities, including private equity outfits and ITV, a 17% stakeholder in SMG, may be eyeing the stricken company.

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