ITV drop likely to result in repeats

ITV, the UK broadcaster, is believed to be in the sights of global private equity firm Apax Partners for a second time after its share price dipped below 100p at the end of last week.

Shares in ITV dropped to 96.2p at the close of trading last Friday, only rising by 0.73% on Monday to 96.9p at 11am GMT. The fall has prompted a number of analysts to question whether Apax Partners – among other financial buyers – might make a second attempt at the broadcaster.

ITV’s share price has been volatile so far in 2007, although it has been moving largely downwards since the end of the summer. Shares were trading at 107p in January before a spike to 121.5p in May, when new chief Michael Grade outlined his plans for the future of the group, having replaced Charles Allen at the start of the year.

ITV has been under pressure in the last few years due to falling advertising revenues and, more recently, a string of phone-in and interactive service scandals that are expected to have cost the company at least £18m.

Grade, seen at his appointment as the best candidate to shake up an underperforming asset, has also failed to convince analysts that his plans will make any impact, positive or otherwise, on ITV’s short-term future.

Any offer by Apax Partners would count as a third attempt to buy ITV after it had two offers rejected by the broadcaster’s board in April and May of 2006. The private equity firm partnered with US-based peers Blackstone Group and Goldman Sachs Principal Investment Area to make a 120p bid, which was rejected due to concerns about the “very material increase in ITV’s level of debt”.

A second offer the following week was more ambitious, including a form of the rarely-used stub equity, where vendors are giving a chance to remain part of an asset’s investor base: an 86p in cash offer along with one new share in the acquired business; or an alternative of 44p per new share, giving fully exiting shareholders a cash price of 130p per share.

The offer involved a £1.27bn investment from the consortium – headed by former BBC director general and TV AM chief Greg Dyke – for a 48% slice of ITV, along with approximately £3.5bn of debt.

At the time of the Apax-fronted bid, ITV had a market capitalisation of between £4.8bn and £5bn (US$10bn and US$10.4bn) but now is believed to be worth just under £4bn.

If ITV does become susceptible to another take-private approach, there are likely to be other big leveraged buyout firms taking an interest. At the end of last year, Kohlberg Kravis Roberts and Permira were believed to be partnering with French broadcaster RTL to make a £5bn bid for ITV, with the joint bid enabling RTL to take a minority stake in the business.

However, that news was shortly followed by interest from NTL – now rebranded Virgin Media. In what is understood to have been a bid to scupper Richard Branson taking control of ITV, BSkyB promptly ploughed £940m into acquiring a 17.9% stake, which has been the subject of anti-competition investigations ever since. Some reports suggest BSkyB would favour a private equity – and Virgin Media-blocking – approach.