Granada-Carlton ITV merger OK

THE £ 4.2bn merger of Granada and Carlton has been cleared, placing the bulk of ITV in the hands of a single company.

It is the biggest shake-up of British television since the launch of Channel 4 in 1982.

The deal was cleared by Trade and Industry Secretary Patricia Hewitt, who said investment in quality programmes would benefit. But it has emerged that regional news services could suffer, and the deal depends on new advertising rules so the giant TV company cannot unfairly use its dominant market position.

Granada, maker of Coronation Street, and Carlton - which is behind shows such as Inspector Morse - together will own 12 of the 15 ITV franchises. Only Ulster TV, Scottish TV and Grampian now stand outside what will be renamed ITV plc.

Hewitt said: 'Subject to suitable undertakings by Carlton and Granada so the merger can go ahead, I am confident the merged company will be able to compete more effectively with the BBC, Channels 4 and 5 and BSkyB. A stronger ITV will be able to provide programming of high quality. Broadcasting as a whole will benefit.'

Granada's executive chairman Charles Allen will become chief executive of ITV plc, while Carlton's chairman Michael Green will be chairman. Shares in both companies jumped, with Granada up 9 1/2p at 112.5p, and Carlton up 23 1/2p at 205p.

The £55m expected annual savings are likely to be invested in daytime shows and drama as the network attempts to fight the BBC and BSkyB.

It has a tough task. Granada and Carlton previously lost more than £1bn in an ill-fated foray into digital broadcasting, ITV Digital.

Graham Lovelace, of media consultancy-firm Lovelacemedia, said: 'ITV is still losing viewers to the BBC. Programme chief Nigel Pickard will want as much of the savings as he can to address the number one priority, daytime TV. You could see the beginning of a fightback against a cash-rich and confident BBC.'

But broadcasting unions warned proposed cuts could mean a worse regional news service. Granada's South-East subsidiary Meridian admitted it is considering closing a news studio in Kent.

Hewitt gave Granada and Carlton a deadline of 7 November to negotiate new advertising rules with the Office of Fair Trading. The rules, which include a regular auction of airtime will be policed by the media watchdog Ofcom.

Along Competition Commission guidelines, she wants the broadcasters to set up a contract rights renewal advertising system that guarantees pricing and a discount in line with any decline in ratings.

The 'behavioural' remedy allows the two to merge their sales houses and the outcome will disappoint both ITV's rivals and the advertising world, worried about the dominance ITV plc may hold.

Nick Theakstone, head of investment at WPP's advertising airtime buyer MindShare said: 'We never had a problem with a merger so long as any savings were pumped back into programming. But we are very disappointed that they have not been made to sell the sales houses and the new rules will have to prevent any abuse.'

Paul Richards, media analyst at Numis Securities, said: 'Granada and Carlton will be over the moon about this. The two most likely scenarios were the behavioural remedies, which has happened, and the other was the divestment of both sales houses and that would have been a deal breaker.'

Carlton's Green said: 'In just 12 months the value of the two companies has risen by £1.8bn, we have changed an Act of Parliament and we are ready to deliver even before the new regulator Ofcom is up and running.'

Granada's Allen said: 'This is a really good result. We have got more or less what we asked for. There is even a bonus in that talks with the OFT will not drag on and this deal should be completed by January.'

Allen revealed that ITV has agreed a 7% rise in the amount it will spend on making programmes this year on top of the £100m extra it committed last year. This takes its spend to £850m - the highest by any single European broadcaster.