Granada and Carlton 'must separate sales houses' to seal deal

Carlton and Granada must offer to separate both their advertising sales houses from the main ITV company to stand a good chance of getting their £2.6bn merger past competition regulators, according to legal experts.

Carlton and Granada must offer to separate both their advertising sales houses from the main ITV company to stand a good chance of getting their £2.6bn merger past competition regulators, according to legal experts.

If only one sales operation is separated, the likely proposal under the Carlton-Granada deal, leading media and competition lawyers rate the chances of clearing the regulators at less than 50 per cent.

The two companies confirmed their merger plans yesterday but the key question of what will happen to their sales houses was left open. The transaction would bring together most of ITV, which has 54 per cent of the television ad sales market.

Lawyers said the arguments put by Granada two years ago to the Competition Commission ­ when it successfully lobbied against Carlton's proposed merger with United News & Media ­ would now be thrown back at it. Carlton and United had also planned to separate one of their sales houses but Granada dismissed the suggestion at the time.

The Competition Commission report said: "Granada said ... it was doubtful that separating the sales houses from the ITV companies would achieve any useful results.... Tinkering with the sales house arrangements would not provide any real safeguard against abuse."

Tom Ghee, media partner at Ashurst Morris Crisp, said if both sales houses were spun off, it would remove the problem but would take away many of the benefits of the deal. "With one sales house, it's a hard sell. I'd rate it at less than 50 per cent [chance of getting through]. The merger is logical but it's not in the interests of the ad market," he said.

Charles Allen, Granada's chairman, indicated that separating one sales house was the most likely proposal but he said an acceptable solution would now be negotiated with the regulators and advertisers. Carlton and Granada put cost savings from a partial merger at £35m, while including all the sales operations would yield a further £20m a year.

Andy Barnes, the commercial director of Channel 4, said he would lobby hard against the merger, whatever is proposed for the sales houses. "This is monopolistic by any yardstick. It is not practical or possible to separate the sales houses. Tell me one business that wants its sales forces to compete. An 'independent' sales house would be a sham," he said.

Analysts have speculated that, even if the merger gets regulatory clearance, a US company would then swoop to bid for a consolidated ITV. Mr Allen agreed this was possible. "We would be positioning this [ITV] as a very attractive asset, in time," he said.