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U.K. merger redraws map

Venture to nab 15% of Brit auds

LONDON — The newly disclosed $12.5 billion mega-merger of Carlton Communications and United News & Media will be a tight squeeze, insofar as government constraints are concerned.

The new company, combining free and pay TV, will nab almost a 15% share of the national audience and 36% of national TV ad revenues — just under the regulatory limit for audience share, but well over the ad limit.

No one knows whether the merger will go through, but meanwhile, media minds in Britain are still spinning with the news.

The deal, which redraws the map of British broadcasting, would create the U.K.’s largest private TV group, worth £7.8 billion ($12.5 billion). Pact brings together two of the U.K.’s most formidable media entrepreneurs: Carlton’s Michael Green and UNM’s Clive Hollick.

Green will be chairman of the merged group, Hollick chief exec.

The merged giant will own six regional ITV stations covering 65% of the network, as well as 50% of digital broadcaster ONdigital and 29% of Channel 5.

Carlton also owns Technicolor and Quantel, while United brings the Express newspapers, Miller Freeman tradeshows and the NOP market research agency. Both companies have growing Internet operations, and Carlton has amassed a large film library.

But Technicolor, Carlton’s U.S.-based film processing and video duplication subsid, is one of several assets that have been earmarked for sale once the merger is completed.

The combined annual sales of Carlton and UNM total $10.44 billion. The proposed stock swap will give Carlton 52% of the merged company.

“Bringing free and pay television, program-making and the Internet together in one company creates huge potential,” declared Hollick. “It will have the management, the resources and the financial firepower to succeed in the global media marketplace.”

The deal is subject to approval by the Independent Television Commission and the Office of Fair Trading.

Currently reviewing this ownership limit, the OFT is widely expected to relax the rule in a couple of months. Nonetheless, the merged company may still have to offload one of its smaller ITV stations.

Ownership rules relaxed

The U.K.’s TV ownership rules have been progressively relaxed over the past few years to permit the emergence of larger British media groups capable of competing in the international market.

The Carlton/United merger represents a challenge to the other major player in the ITV network, Granada, which owns the other 50% of ONdigital. Granada execs have made no secret of their belief that ITV will eventually merge into a single company.

The London Stock Market greeted the Carlton/United deal with enthusiasm, driving up the shares of the two companies. Both have suffered recently from investor skepticism about their long-term growth strategies.

Strange bedfellows

In the past Green and Hollick were seen as deadly rivals from opposite ends of the political spectrum. Green was a close ally of former Conservative leader Margaret Thatcher, while Hollick is a Labor peer and senior adviser to Tony Blair.

Pragmatic concerns have driven them together, but it remains to be seen how two such strong-willed characters, who share a reputation for ruthless leadership, will work together.

Meanwhile, there will be some fierce jockeying for position further down the merged group. Carlton’s Nigel Walmsley has been named head of the TV division, but Carlton’s recently appointed chief exec Steve Cain has been pushed out of the new company.

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