Carlton-Granada call off talks

12 April 2012

GRANADA and Carlton, the two dominant ITV companies, have admitted they recently held merger talks to create a combined group worth around £4.6bn, but had abandoned them. The Government said it will change the law which prevents their merger, because there are now many alternative broadcasters.

Dealers had loaded up with Carlton shares amid intense speculation on Monday about a takeover coupled with hopes for some sort of rescue for its costly ITV Digital venture. More than 20m Carlton shares and 60m Granada changed hands.

German media giant Bertelsmann has held talks with Carlton chairman Michael Green and is keen to grow in Britain. Bertelsmann holds a major stake in Channel 5 through RTL, but sees ITV as a bigger prize.

Market talk about plans for a management buyout of either Carlton or ITV Digital (its pay-TV venture with Granada) was played down by analysts. Buyouts usually occur when firms have very strong cashflow, which is not the case here.

Green is due to face Carlton shareholders at the annual general meeting on Thursday when an update on ITV Digital is due. It has cost Carlton and Granada more than £800m. They are trying to cut costs and find a partner to share the burden. The duo are also in discussions with the BBC jointly to promote free digital TV through new £100 set-top boxes, which will soon be in the shops.

This would pave the way for ITV Digital-to stop subsidising the boxes. Crucially, advertising revenues appear to be picking up. 'Carlton and Granada are most heavily leveraged and stand to gain most when things improve,' said Kingsley Wilson at Investec.

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