Carlton and Granada agree £2.6bn merger deal

Following resumed talks announced last Friday, the UK's two biggest commercial TV outfits have agreed a £2.6bn merger deal, combining their production, broadcast and distribution divisions into one unit: ITV plc.

Under the deal, Granada shareholders will receive 68% of the merged company and £200m in cash, while Carlton ordinary shareholders will receive 32% of the company, potentially increasing to 34%. Following completion, Carlton's chairman Michael Green will become chairman of ITV plc and Granada's chairman Charles Allen will be chief executive.

{One ITV has been a vision long in the making,{ said Green. {One company, with one management and one focus can now set its sights firmly on beating the opposition and giving viewers and advertisers what they want.{

With talk of 'significant synergies from duplicated infrastructures,' employees at both companies are bracing themselves for major redundancies in order to achieve target annual savings of £35m.

On top of this, the merger will face regulatory hurdles from the ITC and competition authorities, since the resulting behemoth will control over 55% of the UK television advertising market. Already, several advertisers have balked at the power of the resulting ITV giant.

Consequently the two companies {will be discussing with regulators appropriate arrangements for the sale of airtime by the merged group which may extend to a separate sales organisation{ to compete with ITV plc's inhouse sales teams, according to a statement issued today.

Since Granada and Carlton together own 11 out of the 15 ITV franchises, including both London licences, current regulations prohibit an immediate merger. So, whatever the speed of the merger talks, plenty hinges on the upcoming Communications Bill, which would remove these hurdles if and when it becomes law at the end of 2003.

However, the two companies have hatched a first-stage merger that would comply with existing regulations. Carlton's broadcasting franchises – Carlton (London weekday), Central, Westcountry, HTV West and HTV Wales – and its 20% stake in news producer ITN would all be housed in a separate company, while its production and distribution arms are merged with Granada's ahead of the Bill going through Parliament.

The merger would leave only four of the UK's ITV franchises outside of ITV plc: Ulster, Grampian, Scottish and Channel Islands.