Carlton set to quit ITV merger

CARLTON is considering pulling out of the planned £4.5bn merger with fellow TV giant Granada after the dramatic coup against its boss, Michael Green.

The Carlton board is investigating whether it can break out of the merger or find an alternative buyer, senior City sources have told the Financial Mail on Sunday.

Directors of Carlton believe the deal to create a single ITV company has become a hostile takeover by Granada, which is not paying extra for outright control.

A City source said: 'Carlton's people are very unhappy about events and feel they are faced with a deal they haven't signed up to. This is now a hostile takeover with no control premium being offered. They are asking whether it is possible to break out of the merger, whether another buyer can be found.'

Rebel shareholders forced Green to stand aside as future chairman of the combined ITV group. With his removal, there are now no Carlton directors in an executive role on the proposed ITV board as both the chief executive, Charles Allen, and the finance director, Henry Staunton, are Granada men.

Carlton's only representative on the four-strong executive committee, just below board level, is Clive Jones, who is in charge of news.

A major shareholder in both companies told Financial Mail: 'I have heard of a number of informal talks to the effect that Carlton is considering pulling out. I would not like to speculate on the outcome. We believe the merger is in investors' interests, but if an alternative proposal emerged we would consider it.'

City sources say venture capital groups led by Apax, which has previously looked to take over ITV companies, are considering making an approach to Carlton. US entertainment giant Viacom and Israeli media tycoon Haim Saban might also consider bidding for a stand-alone Carlton.

Under the terms of original deal, Granada shareholders would have 68% of the merged company and get £200m in cash, while Carlton would have 32%.

Friends of Green say he feels betrayed by Granada, which supported shareholders' demands for Green to go. Those shareholders are pressing Allen - who at one stage feared shareholders could also oust him - to be more radical in his cost-cutting plans.

Allen, who is likely to give up his two-year contract to appease investors, has promised annual savings of £55m, but investors say he should aim for £100m.

Foreign bidders could promise more drastic savings in the event of them acquiring Carlton before targeting Granada. The merger has yet to be voted on by Carlton and Granada shareholders and is scheduled to be completed next year.

The spectacular ousting of Green comes as anger is mounting among major shareholders of other leading companies. Barclays and BSkyB also face investors who are increasingly determined to assert control.

The putsch against Green is unprecedented, but echoes events at drugs giant Glaxo-SmithKline in May when shareholders voted down a £22m pay package for chief executive Jean-Pierre Garnier. Glaxo has yet to come up with fresh proposals, testing shareholders' patience.

At Barclays, chief executive Matt Barrett wants to become chairman at the end of next year. But the new Higgs code of best boardroom practice recommends chief executives should become chairmen only in exceptional circumstances.

The Association of British Insurers, whose members control about a fifth of the stock market, says an explanation from Barclays is overdue.

The clock is also ticking at BSkyB, where plans to install James Murdoch as chief executive have set alarm bells ringing.

As the son of BSkyB chairman and 35% shareholder Rupert Murdoch, many investors believe that James, 30, is not necessarily the best man for the job.

Non-executives will interview ten potential candidates for the job this week, but many shareholders suspect a stitch-up.

'The governance processes in this company are very problematic,' said Peter Montagnon of the ABI. It's not clear whether people work for BSkyB and its shareholders or for the broader Murdoch interest.'

But while many see recent events as shareholders asserting their power, Andrew Tusa, fund manager at Deutsche Asset Management - who backed the move against Green at ITV - said it was a matter of perception.

'This kind of thing has been going on for a long time behind the scenes. If we think there's a block to value being created we intervene. Perhaps what has changed is that after recent scandals everyone is watching more closely, including the Government, and we are all more willing to be seen to be doing something.'