New media giant vows to take on Murdoch Carlton and United link to create media giant

Carlton Communications and United News and Media yesterday confirmed a £7.8bn merger that will turn them into Britain's largest media company. The deal, struck after a late night of City negotiations, must be approved by the Office of Fair Trading before it can go ahead.

Carlton Communications and United News and Media yesterday confirmed a £7.8bn merger that will turn them into Britain's largest media company. The deal, struck after a late night of City negotiations, must be approved by the Office of Fair Trading before it can go ahead.

The groundbreaking merger would give the new group the muscle to compete with Rupert Murdoch's BSkyB for television sports rights, a spokesman said. It also intends to be a leading player in new media and the Internet. Michael Green, chairman of Carlton, will become chairman of the merged group. The chief executive will be Lord Hollick, who holds the same post at United News and Media.

Lord Hollick said: "The choice is straightforward - we can wait for the future to arrive or start to shape it today. We plan to invest aggressively in our online business to exploit the huge potential of the new media revolution."

The combined regional television franchises owned by the two businesses will create a "super-ITV" company covering 65 per cent of UK households. Carlton owns the two largest independent television franchises - Carlton in London and Central in the Midlands - as well as Westcountry TV. United has Meridian, Anglia and HTV, and has a 29 per cent stake in Channel 5.

The combined company is so big that it will break the legal limit that does not allow any one company to take more than 25 per cent of television advertising revenues. However, many stock analysts believe that the OFT may allow the deal to go ahead anyway. The watchdog is already conducting a review of the 25 per cent limit, which was imposed in 1994. Since then, there has been considerable pressure to allow media companies to consolidate in order to compete effectively in the digital age, and to take advantage of global markets.

Lord Hollick, a Labour peer and a friend of Tony Blair, is said to be well informed on the latest government thinking on media ownership. United also owns the Daily and Sunday Express, the Daily Star, as well as magazines Exchange & Mart and Dalton's Weekly.

The merger is seen as improving the outlook for the Express titles, giving them a relationship with the 36 million-strong television audience of the combined company and its Internet businesses.

United already has a 50 per cent stake in Line One, a leading Internet service provider, while Carlton has been developing content-rich sites, including the SimplyFood food and wine network and Popcorn video and film network.

City speculation has now turned to the possibility of yet more consolidation, with Granada joining the merged company to create a broadcasting giant that would dominate ITV. The inclusion of Granada would further strengthen a move already seen as a good thing for the development of digital television. Carlton brings to the table one half of the digital terrestrial broadcaster ONdigital, while Granada owns the other half. However, Granada joining the Carlton/United camp would require government approval. Another option for the Manchester-based broadcasting, catering and hotels business would be to make a hostile bid for Carlton.

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