ITV Board and US Bidders Woo Shareholders With Cash

28 March 2006

'Money can't buy me love,' sang John Lennon.

But it sure can buy you votes. Or so apparently believe both the management of ITV and the US consortium of private equity companies currently bidding for the UK's largest commercial broadcaster.

According to Monday's Financial Times: "ITV's management team will this week meet shareholders to discuss giving them back more cash, while the private equity consortium vying for control of the commercial broadcaster is considering offering a cash sweetener."

ITV has already outlined plans to return £300m to investors via a share buy-back scheme. But that intention could be compromised by a significant shortfall in ITV's pension fund. Any conversion of stock to cash would increase the fund's debt burden and require the permission of its trustees.

In addition to fanning the sweet smell of pensioners' money towards its major stockholders, ITV management will also explain why it rejected the consortium's bid.

The three-strong alliance, comprising Apax Partners, the Blackstone Group and Goldman Sachs Capital Partners, slapped a £1.3 billion ($2.27bn; €1.88bn) cash deal on ITV's table. Although the consortium's stake would be outweighed by the combined holdings of other investors, it would effectively hand the trio control of ITV.

The ITV board rejected the bid, ostensibly because it did not offer a full cash exit to shareholders who prefer not to retain stock alongside the consortium. The trio are said to be mulling a sweetening of their offer to take account of this.

Another good reason for the thumbs-down (which ceo Charles Allen and his acolytes did not spell-out) is self-preservation. The consortium has proclaimed its intention to replace ITV's senior management with its own executive line-up led by Apax advisor, the former BBC director general, Greg Dyke.

But the reluctance of smaller institutional shareholders to play second fiddle to the consortium is more likely to be the reef on which the US trio's bid could founder.

One such investor told the FT: "If we want to make changes [to ITV] then we can make them ourselves without giving a large part of the company to [the consortium]."

Data sourced from Financial Times Online; additional content by WARC staff