City bets on a break-up of Hollick's United News

Carlton Communications unceremoniously called off its £9bn merger with United News & Media yesterday, leaving the way clear for Granada to step into the breach with a carve up bid for either United or Carlton.

Carlton Communications unceremoniously called off its £9bn merger with United News & Media yesterday, leaving the way clear for Granada to step into the breach with a carve up bid for either United or Carlton.

In a statement, United said it remained clear there was significant value to be had from consolidation of UK television ownership and that it would be pursuing with interested parties discussions on how to capture this value. This was widely interpreted in the City as meaning it might be prepared to sell Granada its most attractive ITV franchises of Meridian, which covers southern England, and Anglia, covering East Anglia.

Carlton, meanwhile, made clear that none of its TV assets were for sale and that it would hope to benefit from any breakup of United's TV assets.

As spin and counter-spin collided in the City, United's chief executive, Lord Hollick, spent the day fielding offers for the group's television interests, which are valued at about £2bn. They include three ITV franchises - Anglia, HTV in Wales and Meridian - programming making operations, and a 35 per cent stake in Channel 5.

One ITV insider said: "Everyone has been talking to everyone else. Clearly, United have put a big 'for sale' sign on their TV assets." Sources close to the Labour peer said negotiations had begun with more than two possible suitors with speculation rising that the list of buyers included at least one overseas firm. The degree of bluff and counter-bluff surrounding the likely restructuring of ITV from three groups in to two, led industry watchers to cautious about predicting the outcome.

One certainty, however, was that Granada, under Takeover Panel rules, must act by 4 August. That gives Charles Allen, Granada's chairman, two weeks to negotiate an agreed takeover with either Carlton or United; agree the purchase of certain broadcasting assets from one of the companies; or throw down the gauntlet with a hostile bid for either ITV rival.

Anthony de Larrinaga, analyst with WestLB Panmure, said: "It's quite an intriguing situation for Granada between now and 4 August." Other industry watchers echoed that sentiment, while observing that the structure of ITV could yet surprise.

RTL, the broadcasting group in which Pearson has a minority stake and which is planning a £14bn flotation on the stock exchange next week, is understood to be taking an opportunistic and tactical view of the situation. It is known to be interested in securing full ownership of Channel 5 by buying United's 35 per cent stake and could take on its three ITV franchises to gain a seat at UK broadcasting's lucrative table.

"RTL could leverage the programme mass of ITV into secondary rights, satellite and ONdigital," said Mr De Larrinaga. "Channel 3 gives access to digital frequencies and reach that is completely unmatched by Channel 5."

An intervention could also come from Télévision Française 1, France's most-watched TV channel. Patrick Le Lay, chief executive, is known to be close to Carlton chairman Michael Green and is already considering an internet and programming joint venture with the UK broadcaster. An advisor to one of the ITV three observed: "Mr Le Lay might just be sitting back seeing what Granada and Carlton get up to." The abandonment of the Carlton-United merger seemed the mostly likely outcome of the conditions the Competition Commission put on the proposed deal in its report to Stephen Byers, the Secretary of State for Trade and Industry. The Commission ruled the deal could only proceed if the enlarged group sold Meridian.

In a joint statement yesterday, Carlton and United laid blame for the deal's abortion at the Commission's door. "The requirement to dispose of Meridian, one of the four leading ITV licences, undermines the strategic rationale behind the merger and significantly reduces the benefits to shareholders of combining Carlton's and United's businesses," it said. It is understood Michael Green pulled out of the merger since, without Meridian, United's television business would have earnings of only £40m - a small gain for a multi-billion pound deal.