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BBC abandons scheme to sell Worldwide in favour of bigger profits

The BBC has abandoned plans to sell its commercial arm, BBC Worldwide. Instead, it will set new targets to double profits at Worldwide, dashing hopes of a big payday for investment banks seeking to win mandates to sell the division, potentially worth up to £1.5bn.

Later next month, Worldwide chief executive John Smith, leading the review of the BBC's commercial activities, will make final recommendations to director-general Mark Thompson and chairman Michael Grade.

Mr Smith's committee has decided against selling parts of the business to media groups or financial buyers, partly because of the difficulty in valuing it.

Worldwide exploits the BBC brand by publishing spin-off magazines and selling merchandise relating to its pro-grammes and selling its content overseas. As a result, its future profits are dependent on the public broadcaster continuing to make these programmes.

But BBC bosses are also reluctant to sell all or part of Worldwide now because they believe they can run it better and boost its value. Last year Worldwide made a profit of £37m on sales of £657m. Mr Smith has told staff this is "low" and "now's the time to focus more on profit".

A City source said: "They don't want to throw the baby out with the bath water. Why sell it now when they can run it better themselves?" A sale or flotation is not ruled out at a later stage.

The committee will recommend that some parts of the business be hived off in joint ventures or outsourced to maximise revenue.

Worldwide would sell a stake in a venture to a third party for a fixed time but would retain ultimate control. The books division is thought to be particularly suited to this kind of deal.

Worldwide is not the only commercial arm of the BBC under scrutiny. The future of BBC Resources, the production facilities service, and content provider BBC Broadcast, are also being considered as part of the commercial review that coincides with the review of the BBC's next five-year charter starting in 2007.

A sale of these businesses is likely as they are not seen as essential to the BBC's public service remit, though bankers said they would be difficult to value. The BBC is by far the largest customer for both businesses, despite attempts to attract outside business.

A similar deal could be constructed to the one that saw BBC Technology, its IT division, sold to Siemens last month. BBC Technology will continue to provide IT services to the BBC for the next 10 years.

The sale of the businesses would allow the BBC to strengthen its hand in negotiations with the Government over the terms of its charter next year. The sales could also dampen likely criticism from the BBC's commercial rivals that its review has not gone far enough.