Regulator casts further doubt over Carlton-Granada merger

The proposed merger of Carlton and Granada suffered another regulatory blow yesterday when the Competition Commission indicated that the companies would have to divest both their sales houses. A "statement of hypothetical remedies" from the commission failed to mention the lesser concession that Carlton and Granada favour privately - separating one of their two sales houses.

The proposed merger of Carlton and Granada suffered another regulatory blow yesterday when the Competition Commission indicated that the companies would have to divest both their sales houses. A "statement of hypothetical remedies" from the commission failed to mention the lesser concession that Carlton and Granada favour privately - separating one of their two sales houses.

Instead, the watchdog said in a letter to Carlton and Granada, the two main ITV companies, that it may be willing to commit regulators to reconsider the divestment of both sales houses, in five years' time. Jane Whittaker, the head of the competition practice at Macfarlanes, the City lawyers, said: "If it [the one sales house solution] was considered to be a runner, it should have been mentioned [in the letter].... I would not be happy if I was acting for Carlton or Granada."

The document from the commission followed an "issues letter" at the end of last month, which also failed to mention a remedy that would see just one of the sales houses divested. Yesterday's statement from the regulator appeared to be aimed at showing more flexibility but lawyers said it offered little of value to Carlton and Granada. Together, the two companies would have more than 50 per cent of the TV advertising market.

Competition experts said it looked increasingly like the Competition Commission would demand the separation of both sales houses as the price of allowing the deal through. It is thought that this might make the companies walk away from the merger altogether. Officially, Carlton and Granada have said they want to retain both sales houses, to unify and integrate the ITV network.

Michael Green, Carlton's chairman, said recently: "This merger is about creating a single, major ITV grouping, one that can take on the competition. Why make it more dysfunctional?"

In the letter released yesterday by the Competition Commission, another possible remedy was raised - stopping the "share deals" that currently govern how TV advertising slots are bought. However, lawyers and media buyers said it was unclear how this would address the competition concerns.

David Jowett, deputy head of broadcast at MediaCom, a leading advertising buying agency, said: "The fact is that there would be only one ITV to deal with, that's the problem, not the mechanism for buying advertising."