Granada urged to seek better deal on merger

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The Independent Online

Granada shareholders are becoming increasingly unhappy over the terms of the proposed £3.5bn merger with Carlton Communications.

Under the terms of the ITV merger, announced last October, Carlton shareholders would get 32 per cent of the combined group and Granada 68 per cent, reflecting the latter's larger business and stronger balance sheet. Gran-ada shareholders would receive an additional £200m in cash, while Carlton could get more shares if performance targets were met.

But since the announcement Granada's shares have risen by 38 per cent, and Carl- ton's by just 32 per cent. Analysts say this reflects the uncertainty over the merger's chances with competition regulators and the potentially greater attraction that Gran- ada has on its own.

Institutional investors meeting with Granada executives recently have expressed concerns about whether they are getting a fair deal. Chairman Charles Allan is thought to agree with the sentiment, but fears that to raise the issue with Carlton could derail the merger. He took years to reach a compromise on the deal with Carlton's chairman, Michael Green, and they have reached an "uneasy truce".

Given the problems faced by ITV, such as declining market share in the face of multichannel TV, investors say the £35m a year the merged group could save is worth the price. But if the discrepancy between the share prices widens, this could prompt Mr Allen to take the risk.

"Since the interim results in May, Granada has been in discussions with the majority of its shareholders, and a broad range of issues were discussed," said a spokesperson for Granada. Carlton was unavailable for comment.

Recently, the two companies put a last-minute proposal to the Competition Commission after being faced with the prospect of selling off their sales houses to keep the mer-ger on track. The new sacrifice is for the combined com- pany to fix its current prices with large advertisers, yet be forced to reduce its prices if its market share goes down.