Dyke consortium pulls its bid for ITV as board frets about debt

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The Independent Online

ITV will now meet shareholders next week to discuss increasing its existing plans to return cash, which could see the company lift its share buyback from £300m to £1bn.

The Dyke consortium, made up of Goldman Sachs, Blackstone Group and Apax Partners, originally offered 86p a share in cash, which would have given the consortium a 48 per cent stake in the company, plus shares in the business worth 34p a share - 120p in total. For Mr Dyke, who was on a skiing holiday yesterday, success would have meant a triumphant return to ITV, where he made his name before becoming director general of the BBC. He was ousted from the BBC in 2004 and has since been seeking another "big job" in television.

ITV said the all-cash bid offered an inadequate premium of only 11 per cent to the company's share price ahead of the consortium's interest becoming public.

The company also said that, for shareholders who would opt for the mixture of cash and shares, the consortium's planned debt level, of £3.5bn, was "unduly risky for a business that operates in a cyclical environment and has high operational gearing". Debt would have stood at seven times last year's earnings, before interest tax, depreciation and amortisation (ebitda).

ITV said: "This high level of debt would have enabled the consortium to buy, for less than £1.3bn, a 48 per cent stake in a company which, immediately prior to the leak of the consortium's approach, had a market capitalisation of £4.8bn."

The bidding consortium, which wanted an ITV board recommendation, formally withdrew its offer unless another offer emerges or "there is a material change in circumstances". City sources said that there had been tensions in the consortium, with Blackstone alarmed at the aggressive tactics pursued by Goldman and Apax. The bidders deliberately leaked news of the approach to the press to put pressure on the ITV board, the sources said, which infuriated the company.

One insider added: "Although, as a private equity bid, they could not go formally go hostile, there are degrees of hostility. Blackstone felt some of the tactics were too aggressive."

The consortium, which declined to comment, decided not to pursue some of the more aggressive tactics open to it. The bidders did not proactively go to make their pitch to ITV shareholders. Their business plan was also not made public. The lapse of the bid still leaves ITV having to contend with a share price that has missed out on the stock market rally over the past couple of years and a main channel, ITV1, that has seen sharp falls in its audience viewing figures. Fidelity, ITV's largest shareholder with 14 per cent, is known to be deeply unhappy with the status quo.

Paul Richards, an analyst at Numis Securities, said: "This bid showed that there is greater strategic value in ITV than people perhaps appreciated. But given the technological changes going on right now, probably the last thing that ITV needed was to become highly leveraged."

The television and broadband markets are converging. ITV has bought one internet company, Friends Reunited, and set ambitious targets for growing its interactive and online revenues.

Given the strategic value that ITV still holds, as the biggest commercial channel by a long way, analysts bid not rule out other bidders emerging. As well as trade buyers such as Disney, other private equity offers could come. Clive Hollick, who formerly ran a major part of ITV, is a possible contender. He now works at the giant US private equity house Kohlberg Kravis Roberts.

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