Allen revives Granada and Carlton merger hopes

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Charles Allen, the head of the media group Granada, yesterday put a merger with rival ITV company Carlton firmly back into the spotlight, saying that was what shareholders in his turbulent company wanted.

Granada and Carlton have seen a merger as advantageous for months but have had to focus on the demise of their jointly-owned pay-TV company ITV Digital.

Now that ITV Digital is in administration, the two groups want to refocus on the strategy for their core businesses. The cost savings of a deal may also placate investors who are angry about the £800m that was ploughed into the venture.

Mr Allen, Granada's executive chairman, said: "The strategic logic of a single ITV is inescapable. It is what shareholders want and I am sure it will happen."

The deal would create a £5bn company and unite the ITV network under a dominant owner.

Both companies said yesterday that there were no live talks. It is understood that Granada would like to begin them within three to six months.

The two companies had to admit they were in talks in February because Carlton's share price rose sharply. However they called the talks off a few days later. The reasons included uncertainty about how they would comply with competition regulations and also other problems, such as mounting losses at ITV Digital and the slump in advertising revenues.

UK competition law blocks a combination of the two companies in their current form because no ITV license holder may control more than 15 per cent of the total TV audience. Granada and Carlton's share of ad spending would also need to be below 25 per cent.

Lazard and UBS Warburg are advising the two. They are understood to have suggested the enlarged group could sell one of its licences, probably LWT.

There will also be much-needed clarification on media ownership in the Communications bill, which is expected to be published on 7 May.

But the bill will not become law until the middle of next year, forcing Carlton and Granada either to comply with competition law as it stands at the moment or to wait for a considerable amount of time before completing the deal.

Granada shares have fallen 31 per cent in the past year, giving the company a market value of £3.42bn. Carlton has dropped 42 per cent and is worth £1.62bn. A merger would involve Granada bidding for Carlton.

Michael Green, Carlton's founder and chairman, is in line to be chairman of the new company, with Mr Allen as chief executive. Steve Morrison, who runs Granada's TV operations, and Gerry Murphy, Carlton's chief executive, would have to vie for the post of chief operating officer.

Separately, ITV Digital's administrators Deloitte & Touche are expected to make an announcement about its future this week, having received a number of approaches. Microsoft is rumoured to be among companies looking at its assets.