Sir Richard Branson is backing a bold attempt to change the face of British broadcasting by combining NTL, the cable television and broadband group, with ITV, the flagging commercial broadcaster.
NTL said on Thursday it had advised ITV of its interest in “a possible combination transaction”. ITV has agreed to talks, saying it was willing to listen. But it added: “There can be no certainty that any compelling construct will be forthcoming.”
If successful, a deal would help Sir Richard – NTL’s biggest shareholder with a stake of nearly 11 per cent – to realise long-held ambitions in the television industry. It would also strengthen NTL’s position against British Sky Broadcasting, the satellite group chaired by Rupert Murdoch.
Sky, which has used exclusive content such as football rights to attract customers to satellite television, is now expanding into broadband services, just as NTL now provides broadband, mobile and landline services as well as cable television.
James Mooney, NTL chairman, is understood to have called Sir Peter Burt, chairman of ITV, to ask for a meeting. Neither company would disclose the terms of the approach, which ITV described as highly tentative. But the two sides are expected to meet soon.
It is thought that the Nasdaq-listed NTL is considering a cash offer, given UK shareholders’ historic reluctance to take stock in US companies, but it is not expected to launch a rights issue.
Any cash bid would therefore add further to NTL’s debt pile, accrued as it rolled out its network in the 1990s. Although both companies have a market capitalisation of about £4.5bn, NTL has £5.9bn of net debt compared with ITV’s £700m net debt.
The approach comes at a sensitive time for ITV, still searching for a chief executive to replace Charles Allen, who stood down in August. Investors have been alarmed by the rate at which the UK’s biggest commercial broadcaster is losing advertising revenues and audiences.
For NTL, ITV’s rich library of programming and franchises such as Coronation Street would provide valuable content to differentiate its services in a competitive marketplace.
But many analysts pointed to the execution risk involved with a deal of this scale, hard on the heels of NTL’s merger with Telewest, the UK cable provider, and its acquisition of Sir Richard’s mobile telephony business. Claire Enders of Enders Analysis said of the potential deal: “Financially, it’s a stretch, but there seems to be no end of finance available.”
A change of control at ITV would be subject to a review by Ofcom, the telecommunications regulator, and a public interest test. ITV shares closed up 6.5p at 112p, a six-month high. NTL was down 55 cents at $26.72 at lunchtime in New York.
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