|
[The Proposed Merger] [The Outcome]
| In November 1999, Carlton
Communications and United News and
Media announced a £7.8bn merger, making them the UK's largest
media company. It needs to be approved by the Office of Fair Trading (see
Controversy) as with a combined
37% of TV advertising revenue, it will breach the 25% control limit, but
this limit was under review anyway. The joint group plans to invest immediately
and aggressively in the internet and other new media. It will reach 37m UK
viewers, 65% of the country's households. Assets include a large film and
TV library.
Speculation now focuses on whether Granada should and could be allowed to join the party, either amicably or as a rival to Carlton, especially as investors are not happy with the under performance of both Carlton and United. Even RTL, the £14bn merger of Pearson, Bertelsmann and Audiofina may make a bid. RTL owns 65% of Channel 5, with the other 35% owned by United News and Media. In early 2000 it was reported that Carlton was keen for OnDigital to be floated so that it would boast Carlton's share price but Granada was against this as it would make it more difficult to make a rival bid for the company. On 15 July 2000, the government approved the merger (see box) creating the biggest shake up in commercial TV since its launch other 40 years earlier. |
Commentators thought that the approval and change of rules favoured Granada's hand and they expected the company to make a move. United Media and News is more attractive as a bid for Carlton Communications would require the divestment of one of the 2 London franchises. For Carlton, it would be better to merge with United Media and News, even though this would mean divesting of Meridian, and then using the Channel 5 stake to negotiate with RTL to forge a pan European enterprise. Granada has made it known that it would like Meridian as well as 100% ownership of ONdigital. As much as anything, the contest is one of strong personalities of their respective leaders. But what ever the outcome, advertisers are very concerned that the recent rise in advertising rates will accelerate with just 2 major players.
Within days of the governments relaxations, Carlton Communications called off its bid for United Media and News, citing the Competition Commissions mandate that Meridian would have to then be sold off as not making the remainder worth the effort of merging. The abandonment left the floor open for Granada to bid for either company. Whilst United said that its franchises were for sale, Carlton said none of its TV assets were - in fact it wanted more!
On 28 July 2000 it was over: Granada Media's bid of £1.75bn for United News and Media was accepted and made the company a £10bn TV empire. This was despite United saying nothing less than £2bn would be acceptable. Granada used the occasion to highlight the opportunity to co-operate with Carlton Communications in such areas as www.itv.co.uk, theme TV channels and of course ONdigital - all steps towards an eventual single ITV company. The enlarged Granada will have 30% (£1bn) of the ITV advertising revenue. This is after the disposal of HTV to keep within the ownership regulations. Savings of £30m in the first year were envisaged. The bid consisted of £500m in cash and £1.25bn in cash or stock - if Granada's stock price fell below 585p then United is entitled to cash at 585p per share. In fact within weeks the price did fall after Merrill Lynch down graded the who commercial TV industry in the light of falling advertising revenues. So United took the cash and shortly afterwards announced a £1.25bn share buyback.
Click to continue with Granada Media from September 2000 or with United News and Media from September 2000
Carlton Communications, now much smaller compared to Granada both in UK coverage and market value, was the loser but was given the option of buying the Welsh HTV for £400m. Within days, Carlton said it wished to buy the television assets of the Scottish Media Group, namely Scottish Television, serving the populated central area of the country, and Grampian Television. Together they are worth about £410m. In the end Granada did obtain HTV for £185m in cash plus its 20% stake in Meridian, worth about £180m.
Click to continue with Carton Communications from September 2000.
At the same time the Scottish Media Group (see here) said it might wish to buy HTV - in fact SMG is 18% owned by Granada - but both SMG and Carlton said they would not overpay and did not wish to get into an auction situation. Channel TV, the smallest of the independent television companies, also said it was planning to make a £450m bid for HTV. Channel TV's top management previously worked for HTV.
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