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LWT may seek foreign buyer to stop Granada: French group is a possible white knight - Poison pill acquisition is ruled out

LWT is believed to be exploring the possibility of enlisting a European 'white knight' in an attempt to avoid the clutches of Granada, the leisure conglomerate that yesterday launched a hostile all-paper bid worth 580p a share.

Sir Christopher Bland, LWT's chairman, believes the share price, which has soared since Granada bought a stake in June, is attributable to an international re-rating of television stocks.

'There is more than just pure bid excitement. We are less than two weeks into deregulation. The Continental TV bidders aren't even in the market yet,' he said.

Generale des Eaux, France's fifth-largest company, is understood to be interested in buying LWT, possibly in conjunction with other French groups. Generale owns 20 per cent of the French satellite broadcaster Canal+ but looks likely to surrender that stake as part of a deal with Havas, the media company, and may wish to reinvest in television elsewhere.

It is thought that LWT would see a link-up with a foreign bidder as preferable to being bought by Gerry Robinson's Granada. Despite assurances yesterday that weekend meetings were 'brief and friendly', there appears to be little love lost between the two groups.

Mr Robinson, Granada's chief executive, has so far declined to promise to retain LWT's highly respected top management if his bid is successful.

A 'poison pill' style acquisition of another franchise holder - for example of Yorkshire-Tyne Tees, in which LWT holds 14 per cent - now seems out of the question for LWT since the approval of LWT's shareholders would be necessary in the light of the bid. Granada holds 17.5 per cent of LWT, and is unlikely to support such a move.

Sir Christopher also seemed to rule out the move. 'This is a management which owns 10 per cent of the business. Those aren't circumstances in which you would take a poison pill.'

Granada is offering six Granada shares for every five LWT shares currently held, valuing each LWT share at around 580p. The bid, conditional on the passing of the ITV rule changes and clearance from the competition authorities, had been widely expected and yesterday the share price closed virtually unchanged, up 1p at 586p. There is a cash alternative of 528p per LWT share.

The offer is a multiple of 25 times LWT's prospective earnings, but Mr Robinson believes there will be sufficient gains from rationalising the two operations to ensure there will be no earnings dilution for his shareholders.

Granada said LWT was 'too small' to survive on its own given the radically altered conditions confronting the TV industry. 'In a changing market, what opportunities there are will require significant resources,' Mr Robinson said. 'Without that, you risk being squeezed by both buyers of programmes and buyers of advertising.'

With a market capitalisation of more than pounds 2bn, Granada is more than three times the size of LWT.

Combining Granada Television and LWT would produce a potential audience of 16 million people and more than 22 per cent of ITV's advertising revenues. Mr Robinson said it would offer advertisers a counterweight to a merged Carlton- Central, which would have more than 30 per cent of all advertising.

In the year to 2 October, Granada's turnover rose 21 per cent to pounds 1.6bn while its pre-tax profits were up 53 per cent at pounds 176m. Granada made a number of acquisitions during the year, notably Sutcliffe, the business services group. Without these, turnover would have been little changed, while underlying profits rose 16 per cent to pounds 187m.

Despite interests that include a 13.5 per cent stake in the satellite broadcaster BSkyB, the dominant contributor to Granada's revenues and profits remains its traditional rental business. Last year, the rental division produced about a third of group turnover and more than 56 per cent of operating profits.

Granada TV was the second-biggest contributor, generating operating profits of pounds 43m last year. These were up 30 per cent, mainly due to increased programme sales. Granada is recognised to be the strongest ITV network programme producer.

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