Granada and Radio Rentals forge £1bn television link-up

Granada, the hotels to media group, is to merge its television rental business with arch-rival Radio Rentals in a £1bn joint venture certain to attract scrutiny from competition authorities.

Granada, the hotels to media group, is to merge its television rental business with arch-rival Radio Rentals in a £1bn joint venture certain to attract scrutiny from competition authorities.

The new company, Box Clever, will have a virtual monopoly of the rental television market, with 1,000 outlets and 2.5 million customers. Analysts said the link-up, announced yesterday, could easily be referred to the Competition Commission, in part because of the rental market's predominantly low-income make-up.

"This is a customer base which isn't financially astute and perhaps those people need protecting," said Nigel Reed, leisure analyst at Paribas.

Granada and Nomura, the Japanese investment bank that owns Radio Rentals, will each own half of the new group. They are to make submissions to the Office of Fair Trading at the beginning of next week, arguing that rental forms part of a wider television market that includes TV retailers, such as Dixons and Comet. The OFT is expected to decide on whether to refer the deal to the Competition Commission within 35 days.

Box Clever puts its share of the combined television market at 7 per cent, in third place behind Comet's 12 per cent and Dixons 26 per cent.

Roger Mavity, the head of Granada Technology Group, who will become chief executive of Box Clever, said: "I don't believe there's such a thing as the rental market. Customers say there's a market for televisions, and they can pay how they want. From the point of view of customer behaviour there's one market." Box Clever will subsume almost £1bn of Granada's and Nomura's debt by paying £680m to Granada and £380m in cash and loan notes to Nomura.

The cash component will come from a £860m loan from WestLB, the German investment bank. Analysts estimate Granada's £2bn debt will be cut by £540m. Mr Mavity would not put a figure on how many overlapping stores would close, or how many jobs would go.

"We haven't even decided which head office to close yet. There'll be some job losses in the short term but we'd expect to create jobs in the longer term. The shops that close won't necessarily contain the jobs that go. The two companies have cut 5,000 jobs from 15,000in the last five years, so this isn't about starting job losses but stopping them," he said. While Mr Mavity said the rental and purchase markets should be considered together, he maintained that the rental proposition differentiated Box Clever from Dixons and Comet.

"We want to make rental sexy to the customer. People are being tempted back into rental because they want the latest digital technology but they don't want to commit to spending a lot of money on something which could be out of date in six months. They also want service," Mr Mavity said. He conceded the venture would have thin margins and said it would make money by having a large number of long-standing customers. Box Clever will replace rented equipment every two years, and has also promised not to raise rental charges on televisions hired before the deal is completed.

The deal comes as Granada reasseses strategy for its media assets following the proposed merger of Carlton Communications and United News & Media. "Granada may be inclined not to kick up a fuss over the Carlton deal if it's allowed to treat the rental market and the retail market as the same thing," said Paribas' Mr Reed.

A Granada spokesman yesterday said that Granada was looking at opportunities in international contract catering. Mr Mavity said it was too early to talk about whether Box Clever would eventually be floated off.

Granada shares closed 21.5p higher at 622.5p yesterday, while Dixons closed down 36p at 1244p and Kingfisher ended up 13.5p at 622p.