UTV seeking merger with Scots group

Ulster Television (UTV) is seeking to merge with the Scottish Media Group (SMG) in a bid to create combined business with a value of €580 million.

Both UTV and SMG, which owns Virgin Radio and has the ITV franchise for Scotland, confirmed yesterday that the Irish company had approached its Scottish counterpart with a proposal that both groups merge.

UTV's statement said there was "no certainty" about the terms of the deal. However, SMG said under the proposal, its shareholders would receive a 50 per cent interest in the merged entity.

UTV did say that "a merger could proceed by way of a bid by either company for the other or a scheme of arrangement in either company".

The news follows speculation that UTV was going to bid for SMG, particularly in the wake of a 26 per cent decline in its share price in June. UTV came close to bidding for the Scottish group two years ago, but pulled back when a sharp rise in the target's share price put it beyond the Irish company's reach.

SMG is valued at around €325 million, while UTV's market capitalisation is €255 million.

The difference in value is likely to be a key concern of the SMG board when it is considering the proposal, as a straight 50-50 merger could potentially undervalue the business.

However, it has lost considerable value since June, when it traded at over 90 pence on the London Stock Exchange. This week it was below 70 pence, but it recovered yesterday to close at 72.22 pence.

In July its chief executive, Andrew Flanagan, resigned under pressure from shareholders, concerned at the rate the group was losing value.

Because both parties are bound by London Stock Exchange rules, neither was in a position to comment much further beyond the statements they issued yesterday.

An SMG spokesman said that the board would consider UTV's proposal "as it should do".

If a merger is agreed, it is likely that the UK's media regulator, Offcom, will have to approve it. There is a possibility that a deal would face a similar regulatory hurdle in the Republic.

While SMG has no direct interests here, ITV owns 17 per cent of SMG and 45 per cent of TV3, the independent broadcaster.

If ITV were to retain an interest in the merged business, the Competition Authority could decide to review the deal. SMG also owns cinema advertising agency, Pearl & Dean, which has contracts in the Republic.

Mergers or takeovers involving media companies operating in the State must be notified to the the authority, although it may not necessarily review them.

UTV has the ITV franchise for Northern Ireland. It is the biggest regional radio station operator in the country as a whole, with businesses in Antrim, Cork, Dublin, Limerick and other centres.

Analysts say a merger of UTV and SMG would cut the cost of producing and acquiring programmes, and achieve savings.