Scottish and Grampian talks point to ITV merger

Scottish and Grampian, Scotland's two ITV companies, are in preliminary talks that could lead to a merger, industry sources said last night.

A deal could create the first pan-Scottish Channel 3 company, and may spark another round of consolidation in the commercial television sector.

Scottish Television said it had no comment. Grampian Television did not return calls. The two largest shareholders of Scottish TV are Flextech, the cable TV programmer, and Mirror Group, publisher of the Daily Mirror, each with 20 per cent. Mirror Group also owns 46 per cent of the Independent.

According to a source familiar with the discussions, the talks are at a preliminary stage, and there has been no consensus reached on the form of any merger. Analysts speculated that an all-share deal could be the preferred option.

Grampian, with a market capitalisation of pounds 85m, controls just 0.7 per cent of the television market in the UK, while Scottish has about 2.5 per cent. Together, they would still fall well short of the 15 per cent ceiling on total television audience set by the new Broadcasting Bill.

News of the talks will dampen speculation that a "celtic alliance" of the Scottish franchises, plus Ulster TV and HTV, the licence holder for Wales and the West, might be in the making. According to informed sources, HTV is not involved in the current discussions, a fact that could fuel expectations of a bid by Michael Green's Carlton, long believed to be the mostly likely suitor for HTV.

Analysts also expect a bid by Granada for the 75 per cent of Yorkshire- Tyne Tees it does not already own. Granada and Carlton have so far held back, however, citing the high premiums attached to leading ITV stocks.

An agreed deal between Grampian and Scottish could ignite the sector however. According to a senior broadcasting executive, "it has been clear for some time that Grampian on its own is not a viable entity, and some kind of merger is more or less inevitable".

The same is believed to be true of Ulster TV, the publicly-quoted franchise holder for Northern Ireland.

A merger of Scottish and Grampian could be a first step towards creating an integrated pan-Scottish media company, which could benefit commercially if Scotland is granted greater autonomy under a Labour government.

But a merger would face barriers, insiders warned. A group of local "highlands" investors controls as much as 20 per cent of the shares, and is believed to be wary about any loss of independence. The Independent Television Commission, the TV watchdog, would also review any merger, and would insist on strong assurances that regional programming in the two licence areas is safeguarded. The rapid consolidation of the ITV sector has been a source of concern at the ITC, which has challenged changes to regional scheduling introduced by Yorkshire-Tyne Tees.

The ITV sector has been the subject of speculation since the Government indicated a loosening of ownership restrictions late last year. The two- licence limit is to be lifted, and replaced by the 15 per cent ceiling.

Leading executives believe the network must work together more effectively, to see off competition from a reinvigorated BBC1 and the growth of cable and satellite services.