Granada may seek to alter merger terms

Granada could try to renegotiate the terms of its planned merger with Carlton if, as expected, regulators insist that the combined companies divest their sales operations.

Analysts and industry sources said that, without the sales houses, the terms of the ITV merger agreed last year would favour Carlton.

Granada has a much bigger production business than Carlton, which it will put into the enlarged group. Production activities would form a larger part of the combined company, which would hold most of the ITV licences, if the competition authorities insist that the sales houses are separated and turned into independent businesses. Speaking at the annual Edinburgh Television Festival over the weekend, Anthony Fry, managing director of the media group at Credit Suisse First Boston, said: "If the sales houses go, you could argue that the terms of the merger change, because of the strength of the Granada production business," Mr Fry said.

Carlton, led by chairman Michael Green, is likely to fiercely resist any attempt by Granada to rework the terms of the merger, which gives Carlton 32 per cent of the combined group. A merged Carlton and Granada would have over 50 per cent of the market in television advertising and most industry experts believe that regulators will not sanction a deal that will give the new company such a dominant position.

The Competition Commission, which passed its report on the merger to the Department of Trade and Industry last week, has consistently flagged up the divestment of both the sales houses of Carlton and Granada as a possible remedy to the concerns raised by the transaction.

Mr Green has publicly suggested that such a "remedy" would be a deal breaker. However many industry figures have said that Carlton and Granada have little option but to press ahead with the merger, whatever the concessions required.

Combining the sales operations would add £20m of savings to the £35m synergies available from merging the rest of the businesses, according to Carlton and Granada. David Elstein, the former chief executive of Channel 5, also speaking at the Edinburgh event, said: "The bogey man of double divestment is much exaggerated ... The benefits of the merger do not depend on the £20m from the sales houses".

Granada's production annual revenues of some £530m compare with around £150m at Carlton.