Sky 'out to thwart ntl-ITV merger' - Branson

[BGonaSTICK]

BSkyB's surprise purchase of a 17.9% slice of ITV prompted shares in the commercial broadcaster to slump more than 7% in early trading today, and triggered a furious complaint from Virgin founder Sir Richard Branson. Branson is the largest shareholder in ntl which is poised to discuss a merger with ITV. Now BSkyB is ITV's largest shareholder after Sky CEO James Murdoch on Friday spent £940m buying 696m shares at 135p per share, a 16.6% premium on ITV's closing price of 115¾p.

Branson accused Sky of a "cynical attempt" to thwart ntl's expected merger with ITV. "BSkyB knows an ntl/ITV merger would enable the two companies together to compete on a more level playing field with their own business. Any merger of ITV's content with a distribution platform such as ntl's, would reinvigorate ITV as the leading commercial broadcaster in the UK and give it the strength to compete for premium programming and make the investment in quality programming, necessary to win back its audiences."

Branson accused Sky of seeking to "distort competition" and called on the Office of Fair Trading (OFT) to intervene "on the grounds that this is a breach of the 'general merger provision' of the Enterprise Act, which is designed to protect against any shareholder with more than 15% having 'material influence' over the commercial decisions of another enterprise".

Sky hit back at Branson's statement. A spokesman told the Financial Times: "Sir Richard seems to believe that he and his partners in ntl-Telewest have a unique right to acquire ITV. Sky rejects Sir Richard's assertion that Sky needs to be stood up to."

Meanwhile, ITV today said Sky had confirmed to ITV it had no intention of raising its stake from the current 17.9% to 19.9%, or making an offer for the whole of ITV's remaining share capital. Under the Communications Act Sky is not allowed to own more than 20% of ITV.

In a statement released after the markets closed on Friday, Sky said it wanted to "explore options to create value in the interests of both BSkyB's and ITV's shareholders". "BSkyB believes that ITV is one of Europe's premier broadcasting and production businesses, and holds substantial potential for long-term value creation." Sky said the purchase was made without ITV's prior knowledge, but Sky would now tell ITV's board it wanted to be "a supportive shareholder".

In a conference call with analysts on Friday evening Murdoch said ITV's decline had been "overstated". "We realise that ITV has been going through tough times but with careful stewardship it can return to form. We have respect for its creative heritage and future potential. Right now the board has to get on with recruiting the right leadership."

Earlier on Friday it was reported that RTL Group, owner of Five and Europe's largest broadcaster, was working with private equity house Kohlberg Kravis Roberts on a potential £5bn bid for ITV. Last week RTL's chief executive Gerhard Zeiler said the Bertelsmann-controlled media group was not currently in talks with ITV but would not rule out a deal.

James Murdoch last week questioned the logic behind an ntl-ITV tie-up. He said he doubted whether the expected merger would have any impact on Sky and added: "None of the things ntl is missing is in ITV and none of the things ITV is missing is in ntl. This doesn't seem to be a set of solutions for either side."

Former BBC director general Greg Dyke, who advised a consortium on a rejected 130p-per-share bid for ITV earlier this year, said Sky's equity purchase was ITV's "worst nightmare" since Sky could use the stake to block a merger.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: "A stake of 17.9% is not quite enough to scupper a deal, but it will make life a lot more difficult for ntl or RTL. It would give BSkyB an insight into ntl or RTL's strategy as BSkyB would have to be consulted as the company's biggest shareholder."