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Wednesday, 8 May, 2002, 13:43 GMT 14:43 UK
Investors bet on Granada-Carlton merger
The entrance to Granada's studio tours
Granada would have the upper hand in a merger
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by Mary Gahan
BBC News Online business reporter
Shares in ITV's two biggest companies, Granada and Carlton, have jumped because investors now expect them to merge.

In charge
Granada owns: Border, Yorkshire, Tyne Tees, Meridian, Anglia and LWT
Carlton owns: Central, HTV and Westcountry
Scottish and Grampian are owned by SMG
UTV and Channel TV remain independent

The UK government cleared the way for a merger or takeover in its draft Communications Bill, published on Tuesday.

This will lift the current ban on a single company running ITV.

It will also allow US companies, such as AOL Time Warner and Disney, to buy ITV firms.

ITV Digital

Although a foreign takeover is now a possibility, the view in the City is that a tie-up between Granada and Carlton is the most likely deal.

"The way now looks clear for Granada and Carlton to merge with the additional possibility of non-EU intervention," said Neil Blackley, an analyst at Merrill Lynch.
Gerry Murphy, chief executive of Carlton, and Steve Morrison, chief executive of Granada, at the launch of ITV Digital
A merger would save 50m a year

The two ITV companies had been discussing a merger, but called off their talks in February because their share prices were running away and they did not want to be rushed into a deal.

At the time, both firms were pouring money into ITV Digital.

They have dealt with that problem by withdrawing their backing for ITV Digital and putting it into administration.

But they got through 1bn of their shareholders' money before they offloaded the business.

Takeover by Granada

Both Granada and Carlton have also seen their profits hit by a downturn in advertising.

They are keen to merge their companies into a single ITV giant, so they can cut costs and restore profits.

Insiders at both firms expect a merger, although they say it would effectively be a takeover of Carlton by Granada.

Granada's chief executive, Charles Allen, has said that if ITV were run by a single company, savings would amount to 50m a year.

Competition hurdle

He told his company's last annual general meeting: "We've been clear that a single ITV is absolutely the way forward for us.
Carlton's studios in Nottingham
Carlton and Granada have more than half of all TV advertising revenue

"We need to be bigger in the UK to become a key player in Europe."

"We believe the focus must move from restructuring Granada to restructuring ITV, and that this process both logically and inevitably leads towards a single ITV company when legislation and regulation permits."

But even though the law is being changed, a combined company would still have to negotiate another hurdle.

Carlton and Granada between them have more than 50% of all television advertising revenue.

The Competition Commission could block a merger on monopoly grounds.

At the close on Wednesday, Granada was up 12.25p to 139.25p and Carlton was 7.5% higher at 272p.

See also:

08 May 02 | UK Politics
Media ownership laws to be relaxed
23 Apr 02 | Business
Buyers circle ITV Digital
12 Mar 02 | TV and Radio
ITV merger looks inevitable
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