Fidelity backs Greg Dyke's bid for a controlling stake in ITV

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The Independent Online

Fidelity, the key shareholder in ITV, is supportive of an approach made by the media executive Greg Dyke and backed by Goldman Sachs to take a controlling stake in the broadcaster.

It is understood that Goldman separately put a deal structured in a similar way to the board of airports group BAA ­ before the company received an approach, some weeks ago, from Spain's Grupo Ferrovial.

The US bank, working in a consortium with the private-equity groups Blackstone and Apax, has offered to pay £1.3bn for a 48 per cent stake in ITV, which would remain listed ­ providing no obvious premium for shareholders.

In a statement to the London Stock Exchange last night the bidding consortium left open the possibility of making an outright offer for the company. A full-blown bid is understood to be a possible next line of attack rather than something being worked on.

A deal would see Greg Dyke, who made his name at TV-am and London Weekend Television, return to ITV. Under the Goldman plan, he would replace ITV's chief executive Charles Allen. Mr Dyke, an adviser to Apax, has been without a big media job since he was ousted as director-general of the BBC in 2004.

The Goldman plan envisaged gearing up ITV to return 86p a share to investors. ITV debt would balloon to £3.5bn, unusually high for a media company ­ last year pre-tax profits, before goodwill and exceptionals, was £452m. One industry source said: "Just one advertising downturn and such a highly leveraged vehicle would not be able to meet its interest payments. And if anyone is interested in no premium, they can just sell in the market."

Goldman, however, believes that the ITV share price ­ which closed at 117p on Tuesday ­ already included a premium for a much anticipated bid. The bank believes that paying "another premium" to buy ITV outright was not viable. Its shares ended up 9 per cent at 128p yesterday.

The bidding consortium has met a number of ITV shareholders, including Fidelity. According to City sources, Fidelity is broadly in support of the approach. The fund manager, which has a 14 per cent stake and was instrumental in bringing together Carlton and Granada to form ITV, declined to comment. It was also behind a successful campaign to fire the chairman-elect of the new company, Michael Green, in late 2003.

ITV said: "The board carefully examined this proposal in the context of the company's own strategic plans and was concerned that, inter alia, shareholders who did not wish to retain their shares in this highly leveraged structure would not have been assured of receiving a cash price for their shares at an appropriate premium to reflect the change of control envisaged by the proposal."

The bidders want talks with ITV to continue, on a friendly basis. They would have to tackle ITV's pension fund deficit. It is thought that the trustees of the pension fund would insist on the entire £325m deficit being paid off before the deal proceeded.

Numis said: "Applying such a significant gearing to a cyclical, highly operationally geared business as ITV dramatically increases the risk profile of the group. Accordingly, we believe that the market would de-rate ITV to compensate for this."

Goldman believes that it is offering ITV's existing shareholders, who would retain 52 per cent of the company, exposure to private equity-style returns. For ITV, the change in management may make its negotiations with regulators more complicated. Executives at the broadcaster believe that Mr Dyke has made an enemy of government because of the furore which ended his BBC job, and this could damage ITV's delicate negotiations for its regulatory environment to be further eased.

But Charles Allen could expect a bumper pay-out if ousted. He would get £2m to compensate for his one-year contract. He could also expect his share options to be paid out. His nil-cost options alone are worth well over £6m.

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