Granada and CanWest to form alliance

Canadian group may solve HTV dilemma

Granada Media, whose shares have lost two-fifths of their value in the last month, has been in talks with CanWest Global Communications of Toronto about a broad-based media alliance.

Granada Media, whose shares have lost two-fifths of their value in the last month, has been in talks with CanWest Global Communications of Toronto about a broad-based media alliance.

Any deal is expected to fall short of a full merger, though initially it could involve Granada selling HTV, the West Country and Wales TV franchise, to the Canadian company.

Granada has to sell HTV as a condition of being allowed to buy the ITV businesses of United News & Media. Granada stole the UNM operations from under the nose of its arch rival, Carlton Communications, and is expected to complete the purchase next month.

It then has six months to sell HTV. Carlton is understood to be favourite to purchase the franchise, although a buy-out team led by former managers is planning to make a rival offer.

CanWest, which is run by Izzy Asper and his son Leonard, has already struck a deal with Granada, selling it a 49 per cent stake in TW3, the new independent network in the Republic of Ireland backed by CanWest. The Canadian group also owns 30 per cent of Ulster TV as well as TV interests in Australia and New Zealand.

The group hit the headlines earlier this year when it paid C$3.5bn (£1.66bn) for the regional newspaper interests of Hollinger, headed by Conrad Black, which also owns the Daily Telegraph and The Spectator in the UK. The deal brought CanWest over 200 local titles and a 50 per cent interest in the daily National Post.

Izzy Asper, who started his career with a small TV station in Winnipeg, has talked recently of his close relationship with Charles Allen, the chief executive of Granada Media.

Mr Asper has been impressed by the programme library owned by Granada. One of the key elements of their joint venture in Ireland has been the ability of Granada to deliver Coronation Street, which previously ran on the Irish state TV service, RTE.

The two companies are understood to be looking at possible investments in Europe and developing more "content" for digital TV services, the internet and mobile telecommunications. CanWest and Granada may also join forces to help the Aspers develop their network of speciality TV channels in Canada.

Granada desperately needs some good news to reverse the downward spiral in its share price. The company, which demerged from the catering business Granada Compass in the summer, has been hit by negative sentiment about advertising revenue and the potential profitability of its digital TV joint venture, ONdigital.

Its shares, which were floated at 550p and reached a high of 676p only a month ago, have collapsed in recent weeks, hitting a low of 407p on Friday after another profits downgrading by Merrill Lynch, the investment bank.

Mr Allen has been attempting to reassure investors in recent days. However, he was not available for comment when contacted to discuss the group's relationship with CanWest.