Granada-Carlton merger sent for full competition inquiry

The planned merger of Carlton and Granada was sent by ministers for a full investigation by the Competition Commission yesterday, following concerns that the deal will produce excessive concentration in television advertising.

The referral was expected but there had been some speculation in recent weeks that it may not happen, after the initial examination of the transaction, by the Office of Fair Trading, took longer than expected. The deal, announced in the autumn, would bring together most of ITV and account for over 50 per cent of the TV advertising market in the UK. The surprise yesterday was that the announcement from the Department of Trade and Industry raised "secondary" questions about regional studios and the lack of competition for ITV licences. It is thought this relates to fears that the merger would lead to studios being closed.

The ITV licences issue was being seen as concern for reduced competition when the licences come up for renewal and for a lack of buyers for the four licences that remain outside Carlton and Granada. The OFT will publish its full report shortly. The Competition Commission will give its verdict by 25 June.

Charles Allen, executive chairman of Granada, said: "Today's decision means that the merger, regulatory and legislative processes and timetable will continue to run concurrently and the Competition Commission report due on 25 June is in line with the original timetable we envisaged on the announcement of the merger."

So far, Carlton, chaired by Michael Green, and Granada have argued that a merger of the companies ought be allowed. Now that the deal is with the Competition Commission, the serious business of offering compromises will begin. The most likely concession is a separation of one of the two sales houses, which would operate independently. This may be enough to satisfy advertisers' objections that the merger will leave them with one ITV supplier.

Ian Twinn, public affairs director of ISBA, the trade body for advertisers, said: "A full Carlton-Granada merger – which included a merger of their airtime sales operations – would have very considerable implications for the competitiveness of that market.... Nevertheless, advertisers do not oppose the creation of a single ITV in principle."

However, the main losers from the merger, such as Channel 4, will lobby the Competition Commission hard against the deal. Andy Barnes, sales director at Channel 4, said any proposal to keep the sales houses separate was unworkable. "If you merge the two companies, how do you keep the sales houses separate? It just shouldn't be allowed," Mr Barnes said.

Although the City was initially sceptical about the deal getting through the competition watchdogs in a viable state, the majority of opinion now seems to view clearance as likely.

Kingsley Wilson, analyst at Investec Securities, said: "I think it will go through. It benefits consumers and advertisers can be persuaded that a merged ITV will provide a better platform."