View from City Road: Granada pays a high price for a wasting asset

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The Independent Online
Christmas has come early for LWT's shareholders. Few could they have suspected six months ago that before the year was out they could be cashing in on a rise of more than 54 per cent in the value of their investment.

For that they have Granada to thank. Admittedly, there are other potential buyers for LWT - with Anglia, Scottish and the already- engaged Central, it is one of only four franchises that could catapult a purchaser into a commanding position within the ITV network. But the buyers are fewer than is commonly thought, and anyone else would have to circumvent Granada's existing holding in LWT. None looks in a stronger financial position than Granada.

That includes foreign groups, such as Generale des Eaux, which have their own problems when it comes to mounting a bid for a UK company - and not only the hostility this would engender in an already irate House of Commons.

To Continental eyes, deprived of easy cost savings from rationalising two domestic operations, the inflated price of the juicier television groups looks sky-high, especially when currencies are taken into account. LWT may well look across the Channel for a saviour. Whether it can put together a deal that makes sense is another question.

But then so is the logic for Granada's shareholders in the bid. Short-term it may appeal - cost savings of more than pounds 6m are easily achievable and should prevent any dilution of earnings this year. Advertising revenue should start to gain momentum as the recovery gathers pace. And consolidation of terrestrial independent television ownership is much desired by franchise holders.

Yet what is good for the industry is not necessarily good for Granada. Its key problem is how to replace its atrophying core rental business. The market base is shrinking steadily; rented televisions may be profitable, but they are becoming a thing of the past.

Nevertheless, short-term profits aside, in alighting on its terrestrial television interests Granada is buying a wasting asset at a very high price. By the time the franchises expire in 2002 the BBC's charter will have been reviewed, Channel 4 may have been privatised, and goodness knows what satellite and cable competition will be around. LWT's franchise - if not Granada's - may not be renewed. It is impossible even to be sure that a regional franchise-based terrestrial television industry will exist.

As with Central, shareholders should prepare to abandon ship if no rescuer appears within the next few days. Given that a question market hangs over Granada's strategy, it makes more sense to reinvest gains elsewhere. Selling LWT shares in the market rather than taking Granada's offered cash alternative - at a 10 per cent discount - is the best option.