Carlton and Granada drop plans to buy SMG's television business

Carlton and Granada, the largest stakeholders in ITV, have shelved plans to launch a bidding war for Scottish Media Group's television business north of the border which it has put up for sale.

The two companies have refused to pay SMG's asking price of about £350m for the division, which includes television licences and a production company that makes Taggart and Wheel of Fortune.

SMG, headed by the chief executive Andrew Flanagan, is trying to sell its television business because it needs to reduce itsdebt, which has risen to almost £400m. Critics say the company incurred the debt by overpaying for acquisitions such as Chris Evans's Ginger Media Group.

Carlton and Granada are interested in buying SMG's television business, but want to drive the price down. Apax, a venture capital firm, is also thought to be interested, as are a number of other private equity houses including Candover.

SMG's Grampian and Scottish Television ITV licences would be a good fit for Carlton or Granada. But if neither agrees a deal, SMG could turn to Apax. Granada also faces a possible regulatory hurdle. Adding the Scottish ITV franchises to its portfolio would push its share of the national market high enough to risk a regulatory inquiry.

SMG's media interests include Virgin Radio and Ginger Television, which made TFI Friday and is part of the company SMG bought from Evans.

SMG has a 25 per cent stake in GMTV, the national breakfast channel, and the group also makes the Club Reps fly-on-the-wall series.

Evans, the DJ and television presenter, earned almost £60m from the sale of Ginger Media to SMG. Apax, which had invested in Evans's business, also made a windfall gain. The deal cost SMG £225m and contributed to its current lack of cash.

One of Apax's senior executives, Stephen Grabiner, was involved in the sale of Ginger Media to SMG and has maintained links with the Glasgow-based company's senior management.

A private-equity firm such as Apax could be an attractive buyer because it would have fast access to large amounts of cash, raised from investors on the back of stellar success in the 1990s.