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Why would-be bidders for ITV fumble for the remote control

A weekend newspaper claim that two suitors were eyeing ITV sent the broadcaster’s shares up 6 per cent, but industry executives and bankers believe there is little immediate prospect that a bid will put its weary investors out of their misery.

It is almost 18 months since British Sky Broadcasting seized a 17.9 per cent stake in ITV to see off possible bids from Virgin Media, the cable operator, and RTL, a pan-European broadcaster that was exploring a private equity-backed offer.

With its shares trading at half the 135p price BSkyB paid, ITV looks at first glance like low-hanging fruit. Interviews with industry executives suggest that several of its past suitors are indeed examining it again, but nobody yet has the stomach for a bid.

With the satellite operator under orders from the Competition Commission to dispose of most of its holding, any would-be bidder could in theory use the stake as a first step to secure control.

RTL and Haim Saban, a media investor who considered an ITV bid four years ago, were reported this weekend to have shown interest in BSkyB’s holding.

All four groups declined to comment yesterday, however. Bertelsmann, which controls 90 per cent of RTL, indicated last month that buying out minority shareholders in the business was a higher priority.

Potential bidders include US broadcasters seeking a production beachhead in Europe. They have been attracted by ITV’s status as one of Europe’s three big television producers and the UK’s largest commercial broadcaster.

Would-be predators believe that improvements in ITV’s peak-time programming and savings in its production budget could create value for a new owner. But these same factors also highlight a series of obstacles in potential bidders’ paths.

Valuation is the first. Even at 67.9p, up 3.9p yesterday, ITV “is still more expensive than most other western TV companies”, one investment banker said yesterday. “You can’t raise the debt.”

With an equity value of £2.7bn and £668m of net debt at the end of December 2007, ITV is out of reach of any bidder that needs to tap tightened credit markets.

BSkyB’s stake could be as much an obstacle to a bid as a facilitator, industry executives believe.

The competition appeals tribunal will not hear BSkyB’s appeal against the ruling that it must cut its holding until June, and the broadcaster is unlikely to give up the stake without proving its point with the regulators.

That ruling also served as a reminder of the competition issues that could face some rivals.

RTL, which already owns Five in the UK, could trigger a Competition Commission investigation if it bought BSkyB’s 17.9 per cent stake, let alone if it launched a full offer.

Those suitors that have not been put off by the structural challenges facing broadcasters in a fragmenting media market have to consider the cyclical threat of slowing advertising spending, analysts say.

“I don’t think people feel any security about the future of TV advertising,” said Toby Syfret of Enders Analysis yesterday. “There’s still a fear that there could be a very nasty dip [in budgets] this year.”

Michael Grade, ITV’s executive chairman, said in March that it had seen no sign that advertising budgets were falling and reported that the decline in net advertising revenue for ITV1, its flagship channel, had slowed from 12 per cent in 2006 to 4 per cent last year.

The bigger uncertainty, according to one executive who has examined ITV, remains the regulatory regime, which restricts how much ITV can charge its advertisers. Although the Office of Fair Trading is reviewing the contract rights renewal regime, any relief is unlikely to be felt until 2010.

In the shorter term, ITV remains “on the cliff” of losing its investment grade rating, according to Christian Rauch, an analyst with Moody’s, which last month rated the group Baa3 with a negative outlook.

Should anything knock ITV’s bonds into junk territory, any prospective buyer may yet be able to strike at a lower price.

Источник: Financial Times

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