ITV bidder may walk rather than fight

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The Independent Online

The consortium spearheaded by former BBC director-general Greg Dyke has ruled out a hostile takeover bid for ITV, raising the possibility it will walk away this week if a revised offer fails to win over the broadcaster's board and shareholders.

The consortium, made up of the private equity groups Apax Partners and Blackstone and the US bank Goldman Sachs, was understood to be working on a new offer over the weekend which could include a cash sweetener.

Unless it gets the backing of shareholders and a recommendation from the board, headed by chief executive Charles Allen, the trio will walk away. ITV swiftly rejected the consortium's proposal to take a controlling stake last week and is thought to want a substantially sweetened offer.

"There is a very real chance they will walk away - it's very difficult for them to make the numbers work," one source said.

Fidelity, ITV's biggest shareholder at 17 per cent, is understood to be broadly supportive of the approach. Other key institutional shareholders include UBS and California-based Brandes. In what some describe as a battle for survival, Mr Allen will meet them and other major investors this week to explain why he turned down the offer. He will need to come up with an alternative strategy for the struggling broadcaster to satisfy shareholders. It is thought that ITV will offer to increase the size of its recently announced £300m share buyback, in light of the £3.6bn the bidders are offering to pay investors through a special dividend.

The consortium has offered to pay £1.3bn for a 48 per cent stake in ITV, which would remain listed. The plan also envisages gearing up ITV to return 86p a share to existing shareholders, who would be left with 52 per cent of the company. ITV's debt would balloon to £3.5bn, unusually high for a media company. The consortium has left open the possibility of making a full-blown bid for the company.

Some signs of tension have emerged within the group, with Blackstone thought to be unwilling to adopt an aggressive bid approach. Its style is usually to invest in a company alongside the management, and it does not want to damage its reputation by getting involved in a hostile bid situation.

A deal would see Mr Dyke, who made his name at TVam and London Weekend Television, return to ITV. Under the trio's plans, he would replace Mr Allen and most of the top management would also be axed. Mr Dyke, currently an adviser to Apax, has been without a big media job since he was ousted as director-general of the BBC in 2004.

The bid battle has pitched two media moguls against each other who first crossed swords in 1994 when Mr Dyke's LWT was bought by Granada, where Mr Allen was finance director. In his autobiography, Mr Dyke dismissed Granada, which at the time owned service stations, as a "cost-cutting caterer".

If Mr Allen gets ousted, he stands to collect a bumper payout. He would receive £2m to compensate for his one-year contract and could expect his share options to be paid out. His nil-cost options alone are worth well over £6m.

Some ITV shareholders may balk at the level of refinancing fees involved in the bidding consortium's proposal. Under the plans, £200m is set aside for the costs of arranging £3.2bn in debt. While Goldman is not guaranteed to scoop up these fees, it is a very aggressive lender and could well win them.

The proposal also envisages reducing ITV's programming budget by 25 per cent. Some £250m could be ripped out of the £1bn annual budget, which would mean scheduling more repeats and more bought-in American programmes such as Friends and The West Wing, currently the preserve of Channel Four and Five.

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