Sir Richard Branson is backing a bold attempt by NTL to change the landscape of broadcasting in the UK by combining the US-listed cable group with ITV, the flagging British commercial broadcaster.
NTL confirmed yesterday that it had advised ITV of its interest in "a possible combination trans-action". ITV said it was willing to listen, but cautioned: "There can be no certainty that any compelling construct will be forthcoming, still less that any merger or takeover will result."
If successful, a deal would help Sir Richard - the billionaire British entrepreneur and NTL's largest shareholder - to realise his television industry ambitions.
It could also strengthen NTL's competitive position against British Sky Broadcasting, the satellite group chaired by Rupert Murdoch. Sky, which has used exclusive content such as football broadcasting rights in order to attract customers to its core service, is now expanding into broadband services, just as NTL now provides broadband, mobile and landline services as well as cable TV.
NTL's chairman James Mooney is understood to have telephoned Sir Peter Burt, chairman of ITV, to ask for a meeting to discuss a combination. Neither company would disclose the terms of the approach.
It is thought that ITV's shareholders would be reluctant to take stock in a US-listed company, meaning that an all-cash offer was more likely.
Any cash deal would further add to NTL's debt pile, which was accrued investing in its network in the 1990s. NTL has £5.9 billion (€8.76 billion) of net debt and a market capitalisation of about £4.5 billion, compared to ITV's equity value of £4.4 billion and debt of almost £700 million.
The approach comes at a sensitive time for ITV, which is still searching for a new chief executive to replace Charles Allen, who stood down following pressure from shareholders in August. ITV remains the UK's largest commercial broadcaster, but investors have been concerned by the rate at which it is losing advertising revenues and audiences.
For NTL, ITV's rich library of programming and franchises such as the Coronation Street soap opera would provide valuable content to differentiate its broadband and mobile services.
Private equity groups have examined both companies in recent months but it was not clear whether other approaches might be flushed out. ITV shares closed up 6.5p at 112p, a six-month high. NTL was down 55 cents at $26.72 at lunchtime in New York.
Some analysts were nevertheless struggling to see the rationale for such a deal,expressing scepticism about potential cost savings and the structure of any combination.
"From the ITV angle it would provide a route into the subscription model of the market, but barring that, I wouldn't regard it as a match made in heaven," SG Securities media analyst Anthony de Larrinaga said. - (Financial Times service /Reuters)
