Carlton and Granada move towards merge

ITV broadcasters Carlton and Granada today announced they are in advanced talks to merge in a move which would pave the way for a single ITV company.

The long-awaited deal would bring together the two biggest ITV broadcasters and create a company worth £2.7bn (€4.27bn) at today’s prices.

The new company would be 68% owned by Granada shareholders and 32% owned by Carlton shareholders.

Carlton and Granada have long been expected to merge.

Both have been battling against the recession in the advertising industry and have suffered the collapse of their jointly-owned digital operation ITV Digital.

In addition the Government’s draft Communications Bill has paved the way for a single ITV company.

Earlier this year the pair announced plans to combine their businesses but the discussions failed after the news leaked out too early.

Today’s plans cheered the City and shares in both soared in on the London Stock Exchange following the news. Shares in Granada were up 6% at 70.25p while Carlton also jumped 6% to 119.25p.

At these prices Granada is valued at £1.9bn (€3bn) and Carlton at £800m (€1.26bn).

Analysts however said many obstacles remained before a deal could go ahead and cautioned a merger could be blocked on competition grounds.

Graham Lovelace, analyst at media consultancy Lovelacemedia, said: “There are many obstacles ahead.

“First, the government’s Communications Bill, which lifts restrictions preventing a single-company ITV. It could take more than a year to become law.

“Then there’s the concern that the merger could be blocked on competition grounds: a single-company ITV would control more than 50% of television advertising in the UK, and advertising agencies have been lobbying against consolidation of ITV’s currently separate sales houses.”

However the ITV chiefs were confident a single company was in sight.

Charles Allen, chairman of Granada who would become chief executive of the new group, said: “The proposed merger provides a clear route to a consolidated ITV. It would make ITV more competitive now, in an increasingly competitive market.”

He said a merged ITV would ensure viewers and advertisers “continue to benefit from choice, diversity and value”.

Mr Allen added: “For viewers, it means we can continue to put our money into programmes, on-screen.

“For advertisers, it ensures that ITV will go on attracting the mass audiences they want.”

Michael Green, chairman of Carlton who would become chairman of the merged firm, said: “A single ITV is within sight.

“In a rapidly changing broadcast industry we need to combine to compete effectively.

“Delay is not in the interest of viewers, advertisers, stakeholders or the future of British broadcasting.”

Gerry Murphy, chief executive of Carlton, said the groups were hoping to make a further announcement about the deal next week.

He added that the group still had work to do with regards to getting a deal through competition authorities.

“We have got a lot of work to do to explain to competition authorities what our proposal is and why it is acceptable on competition terms. I think we have to go to them with a detailed, well argued proposal.

“I think we have taken the view that there are two issues here. One is the competition issue regarding airtime sales. The second is the Communications Bill.”

Commenting on whether a deal could be scuppered by an overseas player coming in with an offer he said: “It is a fact of life that companies are susceptible to offers from third parties.

“The Communications Bill is opening up the prospect of non-European companies coming into the market. If that happens obviously we will have to deal with it.”