MAI, which owns 61 per cent of Meridian, the south-eastern broadcaster, had been widely expected to bid for Anglia following the relaxation of the ITV ownership rules.
Meridian and Anglia have neighbouring franchises, and similarities between the two companies' audiences made the merger an obvious choice.
Nevertheless, the relatively generous nature of the deal, which values each Anglia share at 637p, surprised the City and put a light under the price. Anglia shares closed up 174p at 658p.
The price - 357p plus 2.667 new convertible preference shares in MAI, with loan note and cash alternatives - has put pressure on Granada, offering 660p a share for LWT, the London weekend broadcaster, to increase its bid.
Based on Anglia's 1993 profits of around pounds 11m before tax and exceptionals, MAI's offer represents an exit multiple of about 27 times earnings. Granada's offer represents only about 24.5 times 1993 earnings - matching MAI's 27 times earnings valuation would mean paying more than 720p. LWT's shares accordingly rose 7p to 675p while Granada's were unchanged at 552p.
But the Granada camp rushed to defend its offer. 'The difference is that there are some quite valuable assets in Anglia other than the television side, which is simply not the case for LWT. LWT has a small investment in ITV and the rest of its interests are loss-making,' said Gerry Robinson, Granada's chief executive.
Granada's offer was 13 times LWT's net assets, he said. In contrast, MAI's bid for Anglia was only 2.3 times its net asset value.
Lord Hollick stressed that MAI viewed the price it was paying for Anglia not in terms of the earnings generated last year, but by the prospects for the current year.
'Obviously in valuing Anglia we've looked at the valuation in a number of ways,' he observed. MAI had taken the view that the past was less important than future prospects. These include efficiency savings as a result of merging some of Anglia and Meridian's activities in sales and administration. Part of the cost savings would include staff reductions, he admitted.
Lord Hollick said Meridian/cellent fit. 'These two companies have the highest growth in net advertising revenue and the highest share of spend. They are natural partners from a sales point of view.'
However, Meridian and Anglia will be unable to finalise their plans for managing airtime sales until the Department of Trade and Industry gives its verdict on the impact on competition for advertising of the current spate of television mergers. The Office of Fair Trading's views on the issue are with the DTI and a statement is expected this week.
The merger would give Meridian/Anglia 18 per cent of net ITV revenues and control over around 28 per cent of revenues, since Anglia has an airtime sales alliance with HTV and Westcountry Television. That compares with 40 per cent for a merged Granada/ LWT and 30 per cent for a merged Central/Carlton Communications.
Sir Peter Gibbings, Anglia's chairman, said the link-up with Meridian would put Anglia in a stronger position to persuade the ITV network to take more of its programmes - Anglia supplies about 6 per cent of network output, compared with a Meridian/Anglia net advertising revenue of 18 per cent.
Lord Hollick and Sir Peter were vigorous opponents of the Department of National Heritage's decision to relax the ownership rules, allowing one company to own two large ITV franchises.
But Lord Hollick said his opposition had been not to change in principal but to piecemeal change. However, piecemeal change had happened 'and you have to live in the real world'.
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