Regulatory concerns cloud £8bn TV merger

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Regulatory Obstacles last night threatened to undermine the proposed £8bn merger of United News & Media with Carlton Communications, Britain's biggest-ever media deal.

Regulatory Obstacles last night threatened to undermine the proposed £8bn merger of United News & Media with Carlton Communications, Britain's biggest-ever media deal.

News of the merger was greeted unenthusiastically in the City amid growing concern that it could be blocked or modified by competition authorities.

In a bold move to dominate Britain's commercial television sector, Michael Green, the Carlton chairman, and Lord Hollick, chief executive of United, agreed to a non-premium merger, which would combine six ITV broadcasters, 50 per cent of Britain's digital terrestrial TV platform and a 29 per cent stake in Channel 5. The group would also own Express Newspapers.

"We want to create a focused media group," said Mr Green. "Both companies have to reinvent themselves and move forward."

Lord Hollick defended the merger's impact on competition in commercial television, noting that Chris Smith, the Culture Secretary, who is responsible for broadcasting policy, is reviewing commercial TV regulation.

"We do need world class broadcasters," said Lord Hollick. "We do need broadcasters of scale. If you go over to Europe you'll see the same thing."

Yet it remained far from clear last night whether the venture would go ahead and, if it did, whether it would require the new company to dispose of some smaller ITV franchises.

The proposed group, as yet unnamed, would cover two-thirds of British homes with 37 million viewers, accounting for 15 per cent of national viewership - the ceiling under current rules. But it is in the hefty 36 per cent market share of commercial TV advertising sales - well above the 25 per cent limit - where the new group could be forced to make disposals. Indeed, its share of advertising revenue rises to 40 per cent once sales conducted for Scottish TV and Ulster TV are included.

Fears that the deal could be overruled or scaled back were reflected in the modest gains of both companies' shares. Carlton rose by only 4 per cent to 576.5p, while United gained 3 per cent to 769p.

"I genuinely think it's a good deal," said Paul Richards, analyst with WestLB Panmure. "The move creates a very strong player in ITV. It is also very good for ONdigital, which benefits from being fully aligned with the ITV network."

ONdigital, the digital terrestrial broadcaster, is co-owned by Carlton and Granada Group.

"I see this as a long play," said one senior television executive. "This gets people to focus. ITV consolidation is happening for real, not just in theory. We'll see how it plays through."

Advertising industry executives expressed concern about further concentration in television advertising outlets. In recent years ITV ad rates have soared, even though its audience share has fallen. "Any media buyer is going to be concerned about the concentration of seller's power," said an executive with a buying firm. He also questioned whether the merger would result in more well funded and better quality programming - an undertaking both companies are expected to make to regulators.

A further novel factor is the new company's top executive team. It brings together, in Mr Green, the chairman-designate, and Lord Hollick, chief executive-designate, two of Britain's most mercurial media bosses and two of the City's most independent corporate leaders. "We both think there is a lot to do," said Mr Green. "There is clarity about our roles. We have the same vision. It is a profound restructuring of the company."

In addition to its broadcasting punch, the new company will spend over £250m a year on new television programmes. It will also own a television library with 20,000 hours of programming and more than 2,000 films.

In recent years, both companies' shares have sharply underperformed those of other media groups amid concerns that their interests are too sprawling and their scale too limited for expansion overseas. Yesterday's proposed deal, while building scale in broadcasting and online content, is being combined with a series of disposals that analysts expect to fetch between £2bn and £2.5bn.

The businesses being sold account for about £1bn in annual sales and operating profit of £200m. Among them are Technicolor, Carlton's film processing and video production business, and non-core assets of United's Miller Freeman division.