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November 10, 2006 10:03 pm

NTL to outline £5bn ITV offer

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NTL is expected to outline a £5bn-plus ($9.5bn, €7.4bn) takeover proposal to ITV this weekend, offering a cash bid to the broadcaster’s long-suffering shareholders while also providing an equity alternative to limit the increase in the cable company’s debt burden.

The planned meeting between advisers is expected to clarify that NTL would offer a premium to ITV’s share price. ITV’s shares, which stood at 105.5p before news of the approach leaked out, closed down 1p at 111p on Friday, valuing it at £4.3bn excluding almost £1bn of debt.

The sign that NTL is not just looking for a content joint venture, as some analysts had speculated, came as industry executives said ITV had considered a bid for NTL earlier this year. Although ITV directors rejected the idea, this may make it more difficult for them to reject the logic of a combination.

NTL’s valuation of ITV remained unclear on Friday night, although analysts said it would be conscious both of ITV’s rejection of a 130p-per-share private equity approach in March, and of the 20 per cent deterioration in analysts’ 2007 earnings forecasts since then.

The approach may force ITV’s board, chaired by Sir Peter Burt and advised by Lazard, to explore whether any alternative bidders would be willing to pay more.

Private equity groups including Kohlberg Kravis Roberts have examined ITV regularly in recent years, and some executives said on Friday that NTL’s approach could force any large US media groups interested in the UK broadcasting market to consider whether to strike.

A successful NTL bid could create a stronger challenger to British Sky Broadcasting, spanning free and pay-television, programming content, broadband services and fixed line and mobile telephony.

It could also allow Sir Richard Branson, NTL’s largest shareholder, to extend his Virgin brand to some or eventually all of ITV’s output.

The proposed deal received enthusiastic support from BBC Worldwide, NTL’s partner in the UKTV channels joint venture. John Smith, the chief executive of the BBC’s commercial arm, said that it was “a great idea” for ITV, NTL and the BBC to join forces. “The BBC’s view is that to have a strong ITV is a good thing, and NTL are our partners so we want them to do well,” he said.

Analysts remained wary about the financial and management hurdles to getting a deal done, warning that NTL may have to renegotiate covenants on its bonds which prevent its debt from rising above 5.5 times earnings before interest, tax, depreciation and amortisation.

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