Following news that Vodafone and John Malone’s Liberty Global had ended talks on an asset swap, the focus has switched to what Liberty might do next.
The US group, which owns Virgin Media in the UK, also holds 9.9% of ITV, and analysts Ian Whittaker at Liberum said there was a strong rationale for a takeover of the UK free to air broadcaster. He said:
If Liberty Global was to buy ITV, it would be unlikely to cause regulatory issues as there is little overlap between the two assets (note when regulators forced Sky to sell down its ITV stake, it was over issues of plurality of news provision, which is not an issue for Liberty).
Acquiring ITV might also act as a hedge against the introduction of retransmission fees for the main channel (assuming ITV1 was to charge Virgin Media £1 per month per subscriber for its channel), this would be a cost of £40m per annum to Virgin.
However, the two main reasons why Liberty may look to acquire ITV would be (1) to utilise the tax losses it has within Virgin against ITV’s profits and (2) if Liberty felt it required more access to proprietary content and saw ITV as a vehicle for this.
Whittaker said Liberty could link up with Discovery - where Liberty has a 29% voting stake and which has been expanding internationally - for any bid:
One possible option might be a joint Liberty Global/Discovery... bid to buy ITV, with Discovery acquiring the ITV Studio assets. This step might have several advantages for Liberty Global namely: (1) it would help reduce Liberty’s cash outlay while still effectively guaranteeing Liberty a privileged position with regards to ITV’s content and (2) most of ITV’s profits come from the broadcasting area, so Liberty would still benefit from utilising Virgin’s tax losses against ITV’s profits.
ITV shares are currently down 2.3p at 248.2p while Vodafone is up 0.25p at 207.45p.
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