Granada Media shares plunge 13% on warning of softer advertising

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The Independent Online

Granada Media yesterday stunned the stock market by warning of a fall in advertising revenues next year, sending its share price plunging 13 per cent. Coming so soon after the July flotation, the warning dismayed investors and could force Granada into paying the entire £1.75bn agreed consideration for Lord Hollick's TV assets in cash rather than shares.

Granada Media yesterday stunned the stock market by warning of a fall in advertising revenues next year, sending its share price plunging 13 per cent. Coming so soon after the July flotation, the warning dismayed investors and could force Granada into paying the entire £1.75bn agreed consideration for Lord Hollick's TV assets in cash rather than shares.

That would virtually eliminate the float proceeds, which had been earmarked for acquisitions on the Continent. Analysts said that in the light of the fall in the Granada share price since Monday, Lord Hollick, chief executive of United News & Media would almost certainly opt for cash from the sale of his three ITV franchises to Granada - Anglia, HTV in Wales and Meridian on England's south coast. United has until early December to decide the terms of payment.

Granada struck the £1.75bn deal to buy United's ITV assets on 28 July and agreed to pay £500m in cash as well as a further £1.25bn in cash or stock. When Lord Hollick obtained the option of a cash or stock alternative Granada's share price was 585p. However, Granada shares plunged 65p to 438p yesterday after it warned that advertising revenue in the six months to March 2001 would be lower than the same period a year ago. The stock, which tumbled 50p on Tuesday, is now below its 515p float price. The 22 per cent dip wipes £1.7bn off the media group's market capitalisation. Granada stocked peaked at 676p last month.

Lord Hollick said: "Our shareholders are in the happy position of receiving value based on the highest ever price for ITV assets and struck at one of the high points of the marketplace. If the Granada share price performed well, then [our shareholders] would have the opportunity to receive Granada shares. If the Granada price falls below 585p then they're fully protected for cash at 585p." Granada downplayed the magnitude of the advertising revenue slowdown and professed to be relaxed about United choosing a £1.75bn all-cash alternative.

A spokesman said: "This is largely a timing issue. The nature of TV advertising means there will always be exceptional set piece events which occur frequently but will never fit into a regular pattern." Granada blamed the softer ad market on the absence of events such as the 1999 Rugby World Cup and the Euro 2000 football tournament.

The warning came two days after Neil Blackley, media analyst with City firm Merrill Lynch, cut his pre-tax profit estimate for Granada for the year to September 2001 by 21 per cent to £256m. ABN Amro joined the downgrade parade yesterday, forecasting Granada's ad revenue growth for the same period would be around 2 per cent against an expected 6 per cent.

The reversal in sentiment hit other media stocks. Carlton Communications, the number two ITV group, fell 5.3 per cent to 549p. Scottish Media eased 11.5p to 295p, while Capital Radio dropped 52.5p to 1550p. RTL, Europe's biggest free-to-air broadcaster and the controlling shareholder in Channel 5, slid 4.5 euros to 131 euros. United, however, bucked the trend, rising 32.5p to 744p.

Granada assumes management control of the United franchises from 4 October with the sale terms decided finally in December. A United spokesman said: "If Granada's share price is where it is now, it's not much of a decision to make. "

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