Regulatory risk

6 May 2003

Investors have belatedly but emphatically woken up to the risk from competition regulation to the proposed Granada/Carlton merger. Something is wrong here. Either the market is needlessly worried, or the companies have given it wholly cavalier reassurances.

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Shares in Carlton and Granada are discounting a high risk that the two UK broadcasters will be unable to complete their planned merger. Investor worries about the deal have been fed by a statement of issues and hypothetical remedies published by the Britain's Competition Commission, and the reaction to it of Carlton Chairman Michael Green.

In its customary preliminary statement, the Commission, to which the government has referred the merger for antitrust clearance, raises the possibility of obliging the broadcasters to divest one or both of their advertising sales houses as a precondition for clearance. Other hypothetical remedies which would only be needed were the Commission to rule that the planned merger was against the public interest included enforcing a code of conduct on the new company, or simply blocking the deal altogether.

Green told The Observer, a Sunday newspaper, that he would withdraw from the tieup rather than accept the forced divestment of his advertising sales operation. He said that, in that event, Carlton's board had agreed a "plan B", but would not reveal any details of it.

Carlton and Granada announced their merger plan in October 2002. They expect a Competition ruling on antitrust issues by 25 June. The merger also requires changes to the law on TV licence ownership, which would be implemented through the Communications Bill currently before Parliament.

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