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Last Updated: Tuesday, 7 October, 2003, 16:54 GMT 17:54 UK
ITV merger gets the go-ahead
Granada's Charles Allen and Michael Green of Carlton
Granada's Charles Allen (left) is expected to be the merged firm's chief executive
The government has approved with conditions the proposed 4bn merger between ITV broadcasters Carlton and Granada.

Trade and Industry Secretary Patricia Hewitt said the tie-up could go ahead provided the two firms agreed to safeguards that would limit its impact on the television advertising market, and on the three regional ITV franchises they do not control.

But she stopped short of ordering the companies to sell off their advertising sales departments, a move which had been suggested as a means of curbing their dominance of Britain's commercial airtime.

The companies control 52% of the television advertising market between them.

Carlton and Granada had previously warned that disposing of their advertising sales divisions would undo many of the benefits of the tie-up.

Price cap

The proposed safeguards include a system of "contract rights renewals," overseen by an independent watchdog, which would limit the combined company's ability to raise the price of advertising slots.

The government wants a 'world-class' broadcaster that can challenge the BBC and BSkyB

The measures are to be worked out in detail in talks later this month between the broadcasters and the Office of Fair Trading.

Ms Hewitt said the remedies must be in place by November, when Carlton and Granada hold their annual negotiating round with advertisers.

She added that provided the safeguards were implemented, the deal would strengthen ITV's position and improve the quality of its output.

"I am confident that the merged company will be able to compete more effectively with the BBC, Channels 4 and 5, and BSkyB," she said.

"A stronger ITV will be better able to invest in and provide programming of high quality, including regional programmes. Broadcasting as a whole will benefit."

Shares soar

City investors welcomed the news, marking Carlton shares 13% higher to 205p.

A new future for ITV starts here
Carlton chairman Michael Green

Merged firm will be worth 4bn
Will have 52% of TV ad market
68% Granada, 32% Carlton
To be called ITV plc
Granada shares also rose strongly, climbing 9% to 112.25p.

Analysts said the decision was a victory for the companies.

"They must be delighted," said Alastair Gorrie, competition partner at law firm Coudert Brothers.

"I'm quite stunned that they are allowed to have a 52% share of the market. I can think of no other industry where that would be allowed."

The merger is expected to revitalise the two broadcasters' fortunes, which have been hit by a downturn in advertising revenues and a steady fall in audience numbers.

Their finances have also been strained by the costs of propping up their ill-fated pay-TV venture, ITV Digital, which went bust last year.

TV cheers

Carlton and Granada have calculated that the tie-up will deliver about 55m a year in cost savings.

Under the terms of the merger agreement, Granada shareholders will control 68% of the combined firm, with Carlton investors getting 32%.

ITV is seen as a valuable broadcasting asset by the US networks - and the expected 4bn asking price is a relatively small amount to pay

Granada chief executive Charles Allen welcomed the merger ruling, saying it would allow "a bigger, stronger ITV to compete on an equal footing with the other UK broadcasters".

Carlton chairman Michael Green said the decision had brought to a close "the days of different companies with different agendas working in a 1950s federal system".

"A new future for ITV starts here," he said.

The two companies aim to complete the tie-up by January next year, and are expected to christen the new broadcaster "ITV plc".

The move is expected to cost some jobs, but there was no word from the companies on how many posts would go.

Takeover target

Some analysts believe the merger paves the way for a foreign takeover of ITV.

So far, US media giant Viacom, owner of MTV and the CBS network, and Hollywood TV entrepreneur Haim Saban, have expressed an interest in buying the company.

This merger is not about improving quality, it's just about making money
Helen C, UK

But any takeover approach would have to wait until after December, when the government is expected to relax restrictions on overseas ownership of British broadcasters.

There has also been speculation that the merger will result in a shake-up of the top management at the new united ITV.

The BBC's business editor Jeff Randall says there is fierce rivalry between Mr Allen and Mr Green, whom he describes as "like two ferrets in a sack".

But Granada has dismissed reports of a management shake-up as "pure mischief making".

The BBC's Jeff Randall
"ITV will be looking to freshen up it's channel"

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