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16/10/2002

Further ITV merger details revealed

The merger of ITV network giants Carlton Communications & Granada looks like it will finally go ahead.
The fusion of ITV's big two will create the largest commercial television production company in Britain, and bring together two of the country's leading distributors of television programmes and films.
While the competition authorities must approve the £2.6 billion deal, both companies have released further details of how the merged group proposes to sell television airtime.
The advertising sales issue is the biggest hurdle to the merger, as current legislation forbids any one company from controlling more than 15% of the ITV audience. The upcoming Communication Bill removes this obstacle, but, as the new company will control some 55% of the market, the Monopolies and Mergers Commission are sure to have questions. Carlton and Granada have suggested that they could split their advertising sales sections into competing units. As it seems unlikely that the companies would release their proposals without some sort of Government consultation, this may prove to be an acceptable solution. Although the Communications Bill will not receive Royal Assent until the end of 2003, the companies appear confident that an "interim structure" can be agreed to overcome current legislation – an indication that the Government have at least given tacit approval.
The motivations behind the merger are readily apparent. The structure of ITV was originally laid down at a time when there was no other commercial competition and the BBC were not the commercialised powerhouse they are now. Since that time ITV has come to face opposition from a wide range of terrestrial and satellite broadcasters, and the BBC have discovered a new aggression.
Carlton and Granada, believing they have found a way to overhaul the aging infrastructure of ITV, maintain that, a unified entity with one management and one clear focus, would be able to compete more effectively in today's world of multi-channel TV. A merged group, they argue, would be more efficiently managed and would have "scale, reach and a strong, distinctive consumer brand".
In addition, the boards of Granada and Carlton believe that the merger will help to create a "virtuous circle of maximising investment in quality programming leading to increased viewing, generating greater advertising demand and consequently allowing further investment."
Michael Green, Chairman of Carlton, said: "One ITV has been a vision long in the making. One company, with one management and one focus, can now set its sights firmly on beating the opposition and giving viewers and advertisers what they want. I want this merger to mean great television programmes and the strongest possible schedule. We must make sure that it does just that."
Charles Allen, Chairman of Granada, added: "This deal means that viewers will see more high quality, original drama, more film premieres and more entertainment events on ITV than ever before. Great programmes that attract mass audiences are key to driving ITV’s success. We’ll work in partnership with our advertisers to use the full power of ITV to drive their brands and businesses. For shareholders, this deal offers fair value now and the opportunity to benefit from increased efficiencies from a strengthened and more focused ITV."
The financial details of the agreement are complex, but in essence Granada shareholders will receive 68% of the ordinary share capital of the merged group and £200 million cash upon completion of the merger. Carlton ordinary shareholders are to receive the remaining 32%. Structures are also in place for these figures to be adjusted in Carlton's favour, dependant on performance.
Carlton and Granada expect that the merger will significantly streamline services and reduce costs - they estimate a saving of £35m in the first year.
Following completion, Michael Green will become Chairman of the merged group and Charles Allen will become Chief Executive. Gerry Murphy, however, currently Chief Executive of Carlton, is widely expected to resign in the wake of the deal.
Finally, the vacant position of Director of Programmes has been filled with BBC Executive Nigel Pickard stepping into the role. Insiders believe Pickard will lead a "velvet revolution" at ITV, rather than the expected clearout if Dawn Airey had accepted the job.
(GB)
VMI.TV Ltd

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