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Last Updated: Friday, 11 October, 2002, 11:10 GMT 12:10 UK
The logic of the ITV merger
By Mary Gahan
BBC News Online business reporter

The merger has had a tortured history
The on-off romance between the two biggest independent television companies in the UK, Granada and Carlton, has been going on for years.

For the past two years, UK's two biggest independent television companies have been toying with each other's affections and teasing their shareholders.

For years there was talk of a single company running ITV.

Then, in February 2002, the two big names in the business said they had come within days of announcing a merger.

Share prices in both companies had risen in the days before that announcement.

One of the reasons the talks were called off was that the firms' share prices were running away and neither side wanted to be rushed into a deal.

Investors were understandably disappointed when the tie-up evaporated.


But however much Carlton and Granada wanted the merger, there was another pressing problem - ITV Digital.

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 pay-TV joint venture was bleeding money and the partners decided to withdraw their support.

ITV Digital went bust in the summer of 2002 and its former owners were occupied with fighting off claims from the Football League for unpaid TV rights.

Then, in May 2002, shareholders got all excited again.

It was because the UK government, in its draft Communications Bill, had decided to lift the ban on a single company running ITV.

Those shares were on the way up again as investors began to bet on the merger going ahead after all.

A trouble shared...

A change in regulations was not the only reason for Granada and Carlton to cosy-up again.

A slump in advertising had hit profits at both companies and they were keen to combine their operations so that they could cut costs and get those profits up again.

Granada's chief executive, Charles Allen, had fuelled merger speculation by saying that if ITV were run by a single company, savings would amount to 50m a year.

While talks of a merger waxed and waned, investors grew increasingly uneasy with the way Carlton and Granada were being run.

The ITV Digital debacle had wasted 1bn of shareholders' money.

And investors were rewarded with some high-profile scalps.

The casualties

The first head on the block was ITV chief executive Stuart Prebble who was in overall charge of ITV Digital.

Then came ITV director of programmes, David Liddiment.

He was criticised for programme decisions, such as showing football highlights early on Saturday nights - it was a ratings loser.

Steve Morrison, chief executive of Granada, was next.

He was blamed for the failure of the Granada-Carlton merger talks and he was seen as another casualty of the ITV Digital debacle.

Granada chairman Charles Allen moved back into a more hands-on role - and, with Mr Morrison out of the picture, seemed ready to re-ignite the love affair with Carlton.

And so, suddenly, it was all going on in public again in October

Advertising hurdle

If the deal was to go ahead, Mr Allen would be chief executive and Carlton's Michael Green would be chairman.

The merger would also give Granada control, with a two-thirds share of the new business.

Even if the companies can now agree a deal, there could still be a 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.

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