Granada and Carlton shares rocket on hopes of American takeover bids

Shares in Granada and Carlton Communications soared yesterday after the Government's Communications Bill set the stage for a merger of the two ITV companies or a bid from an American group. Radio operators such as Capital Radio, GWR and Chrysalis, also saw their shares jump after Tuesday's Bill relaxed the rules on cross-media ownership.

Granada was the highest riser in the FTSE 100, up almost 10 per cent to 139.5p. Carlton was up 7.5 per cent to 272p.

Some analysts said US media giants such as AOL Time Warner, Viacom and Disney may be eyeing up the ITV companies after the surprise move by the Government to relax the rule barring non-EU companies from taking over UK broadcasting assets.

However Lorna Tilbian, media analyst at Numis Securities was more sceptical. "In theory they would be interested," she said. "But in reality they've got enough problems of their own with low share prices, high debts and the after-effects of ill-advised acquisitions. I don't think they are going to be saying 'shall I distract myself with a UK acquisition?'"

The hot money was on a Granada-Carlton merger with the possibility that a US group may then bid for the combined entity. At Numis, Ms Tilbian said: "Most predators would wait for Carlton and Granada to merge and create a more cohesive grouping. For many of the big media groups, they are just appetisers otherwise."

Neil Blackley, at Merrill Lynch, said: "The way now looks clear for Granada and Carlton to merge, with the additional possibility of non-EU intervention."

Brandon Dimassa, at Dresdner Kleinwort Wasserstein, agreed, saying: "In the near term, I would look for a Carlton/Granada combination first, but everything is possible. After that, [Germany's] Bertelsmann, is the most likely predator in Europe, while any of the Americans, being good operators of broadcasters, may see sense in taking ITV and boosting its value by bringing up margins and driving it as a competitive force."

One of the reasons Granada shares rose so sharply is that Charles Allen's group has suddenly turned from predator to prey. Granada would be the senior party in a merger with Carlton but a relatively small bite for the voracious US corporations. With the cash drain of ITV Digital now removed, the deals may look even more attractive.

Another possibility is that Bertelsmann, the German media group, might go for Granada and/or Carlton to prevent them from being snapped up by the Americans.

Analysts said the Bill was "neutral" for Rupert Murdoch's BSkyB as it would not be able to buy a stake of more than 20 per cent in ITV because of its newspaper holdings. But it will be allowed to snap up Channel 5 or radio companies.

David Mansfield, the chief executive of Capital Radio, expressed concern that US companies were being allowed to "mop up" the UK media industry while UK companies were barred from doing the same in the US. He said the radio sector would also lobby the Government about the proposal to retain three radio stations in each region. Regulation should be handled via competition law instead, he said.

Chrysalis will be pressed on its plans in the brave new media world at its results presentations today. BSkyB will face a similar grilling at its results meetings on Friday.