The City sees trouble ahead for the TV marriage between Carlton and United

It all started with a display of the charm which has become as synonymous with Michael Green as the Carlton chairman's volcanic temper. On hearing that Sir Ronald Hampel had been appointed chairman of United News & Media, Green rang to congratulate the former ICI chief and was promptly invited over for lunch. Lord Hollick, Labour peer and chief executive of United, tagged along.

It all started with a display of the charm which has become as synonymous with Michael Green as the Carlton chairman's volcanic temper. On hearing that Sir Ronald Hampel had been appointed chairman of United News & Media, Green rang to congratulate the former ICI chief and was promptly invited over for lunch. Lord Hollick, Labour peer and chief executive of United, tagged along.

Green and Hollick have much in common, fifty-something media chiefs whose relationships with the fund managers who own their companies have seen better days. Indeed, so convivial was the feast that they have decided to merge their fiefdoms, selling off peripheral operations and creating arguably Britain's premier television and publishing empire.

Shares in these stock market laggards raced ahead last week as unsubstantiated rumours of an imminent deal persisted. But not even the market's most credulous investors were convinced until Friday's announcement. For there were Green and Hollick, side-by-side at a press conference to argue the benefits of the £8bn merger.

"The logic of the merger is compelling", trumpeted Green, with characteristic overstatement. "The time to act is now," averred Hollick, a man rather less given to bombast.

And who could argue? In the fortnight since that fateful lunch, Hollick and Green have cooked up Britain's dominant ITV broadcaster, serving 37 million people in 15 million homes. On top of that is a 50 per cent stake in ONdigital and the £250m of new programmes these groups make each year, not to mention publications like Exchange & Mart, an exhibitions business and a burgeoning internet creation. And for garnish there is the investment potential of the £2.5bn of revenue from the disposal of unwanted businesses ­ all very much to the City's taste.

So it was little wonder that Granada chairman Gerry Robinson, until then ITV's dominant player, suffered a bout of indigestion on Friday. Sadly, neither did the City find the dish that appetising. "It hasn't really got the juices flowing," said one fund manager.

Carlton and United shares continued their recent rallies on Friday, but the respective climbs of 4 and 3 per cent were far from impressive for a deal of this size. The barbed comments kept on coming. "Where before you had two mediocre companies, now you have one mediocre company," muttered one investor.

Even critics ­ and there are many ­ of Green and Hollick would accept that this merger will create a formidable broadcaster. The combination of Carlton's main TV interests ­ the Carlton, Central and Westcountry franchises, plus stakes in ONdigital, GMTV and ITN ­ with those of United News ­ the Anglia, HTV and Meridian franchises plus 29 per cent of Channel 5 ­ is simply irresistible.

The problem is that the regulators may find the temptation to intervene too hard to resist. The Office of Fair Trading is conducting a review of the rules which preclude non-BBC broadcasters from controlling 15 per cent of audience share or 25 per cent of total advertising sales. The combined outfit would have 14.9 per cent of audience share, avoiding the need for revised legislation but raising the prospect that it would shun viewers to stay within the law.

But if the deal goes through, the duo's 36 per cent share of advertising sales will exceed the threshold. Conspiracy theorists would argue that Hollick would never have gone ahead with the deal unless he were convinced that the OFT review will presage a change of the rules.

Then again, given that two apparently innocuous media deals have been referred to the Competition Commission in the past month ­ Vivendi's purchase of a 25 per cent stake in BSkyB and the merger of NTL and Cable & Wireless ­ there is every chance of an extended regulatory delay.

While the hiatus would create an opening for a rival bid from Granada, Mathew Horsman, media analyst at Investec Henderson Crosthwaite, thinks the deal is more likely to fall at the regulatory hurdle. "There could be conditions attached," he said. "If they have to sell just one franchise, it could mean that the merger is not worth it."

Nor is the City willing to take Green and Hollick's gamble on trust. In the past five years, United shares have underperformed the media sector by 30 per cent, while Carlton's have fallen 25 per cent below the benchmark. To a degree, this reflects suspicion of the men in charge. Green's achievement in building Carlton from scratch is beyond question but the City has grown tired of his autocratic ways. He assuaged his critics earlier this year by appointing Steven Cain as the new chief executive, but Cain will have no place in the merged company.

The reputation of Hollick has also been tarnished by United's ailing share price. Investors have been put off by what one fund manager describes as its "rag-bag of assets", when the fashion is for focus. Green's Carlton has suffered similar criticism. Hence the doubts when the pair pledge to sell off assets worth up to £2.5bn to invest in core businesses ­ a formidable task dependent on sustained good relations between two such different characters as Green, who will be chairman, and chief executive-designate Hollick.

"We are strong characters," said Green. "We have worked together, been on boards to-gether and sometimes competed with each other, but there's absolute clarity about our roles."

Others are not so sure. "Personality is one of my concerns," said one institutional investor. "Green has a reputation for pissing off his chief executives."

Perhaps their first act should be to dramatise the events of the next few months. They will make compulsive viewing.