Branson fury as ITV snubs NTL bid

Virgin chairman claims rejection of £4.7bn tie-up shows Sky is already influencing broadcaster
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Sir Richard Branson has accused ITV of already falling under the sway of Rupert Murdoch's BSkyB after the broadcaster rejected NTL's £4.7bn approach to buy the company and dismissed the rationale for a tie-up out of hand.

"ITV has closed the door on NTL without even seeking to discuss the strategic merits of a combination with NTL. It appears that ITV now has an 800lb gorilla in its midst," Sir Richard, who is the largest shareholder in NTL, said. He added that Sky's move into ITV represents "a threat to democracy".

He claimed that ITV has performed a volte-face over talks to merge the broadcaster into the NTL cable, broadband and mobile phone business since Sky purchased a stake in the television company. "A week ago, there was a lot of warmth from ITV, a week later a rejection," he said.

"It appears that the purchase has already had a material influence on the company and damaged the plurality of the British media," Sir Richard said.

ITV argued that it had dismissed NTL's initial approach because it materially undervalued the business. Significantly, it also quashed the notion that a merger of the two companies was in its interest, despite ITV's declining audience and advertising market share. The company said: "From ITV's perspective there is little, if any, strategic logic for ITV to combine with NTL."

Sky confirmed that its chief executive, James Murdoch, has contacted Sir Peter Burt, ITV's chairman, over recent days to reiterate that Sky remains a "supportive" shareholder of the company.

Sir Richard called on regulators to force Sky to reduce or dispose of its near-18 per cent stake in ITV due to concerns that the pay-television giant will have material influence over the free-to-air broadcaster. Sir Richard accused BSkyB of anti-competitive behaviour and raised concerns over the plurality of ownership in the media sector.

Sir Richard said: "I think it is absurd to have a business where you have to look over one's shoulder all the time to your principal competitor. It blows the competition in the media completely out of the water."

Lord Puttnam lent heavyweight support to Sir Richard's arguments that regulators should investigate the deal. Lord Puttnam was a key figure in drafting the Communications Act in 2003. The Act contains a clause that allows ministers to investigate the "public interest" implications of media takeovers to preserve the plurality of media ownership in this country. Under a separate clause in the Act, a major newspaper owner, such as Rupert Murdoch, was barred from buying more than 20 per cent of ITV.

Lord Puttnam said: "A continuing silence from the Government can only create the impression that there's some sort of cordon sanitaire around the affairs of News Corp." He also echoed NTL's argument that the deal raises issues around the Enterprise Act. "I find it hard to see how [Sky's move] can be interpreted as anything other than undue influence," he said.

NTL will lodge a complaint with the Office of Fair Trading over the next few days. Competition lawyers believe Sky's purchase raises issues that the OFT will need to investigate.

Yet Sky has maintained that its shock purchase of a near-18 per cent stake in ITV for £940m last week was purely a financial decision. Jeremy Darroch, chief financial officer of Sky, said: "We invested because we think it is a high quality asset with a lot of growth potential."

The move has in effect derailed NTL's ambition to buy the UK's largest free-to-air commercial broadcaster because it cannot consolidate ITV's cash flows or utilise billions of pounds in tax losses against future profits without taking full control of the company.