Focus: Remote control

There were no kind words for his partners when Hetherington triggered the get-out clause last week.

In the best soap opera plots, there are always people caught in the middle. Here it is the 10% shareholders — James Morris, Paul McGuinness and Ossie Kilkenny — but instead of suffering from the fall-out, they are likely to cash in their investment as the ownership story resolves itself.

A sales process that could take six months to resolve is now under way. But it’s a soap — so expect the unexpected.

RUMOURS of the CanWest sell-out had been floating about TV3’s Ballymount studio for weeks. As staff huddled afterwards to discuss the implications of Hetherington’s announcement, two names emerged as possible new owners: ITV and Denis O’Brien.

With pre-emption rights that give the company first call on CanWest’s shares, ITV is in the box seat. But don’t discount the claims of O’Brien. The mobile multimillionaire owns 31 radio stations across Europe and recently spent €56m building a 3% stake in Independent News & Media, Ireland’s biggest newspaper group.

Corporate financiers would usually be dizzy with excitement at the thought of getting a cut of the fees involved in selling a prized media asset, especially one with a €100m-plus price tag. Their bottom lines and bonuses have been boosted enormously in recent years from hawking local radio stations and regional newspapers, but this transaction doesn’t look as attractive.

“I presume it’s a slam dunk for ITV,” said one leading corporate adviser. “I’m sure Setanta and UTV will have a look at it, but, given its pre- emption rights, I can’t see ITV not buying it.”

Leigh Webb, a media analyst with Panmure in London, agrees that a deal between the two could be on the cards. “It’s a definite possibility,” he said. “ITV is not heavily geared, although its focus in recent times has been to diversify its operations away from relying on television advertising. Its acquisition last month of Friends Reunited (a community website) is a signal of this.”

The £4.5 billion (€6.6 billion)ITV is the obvious buyer and could choose to mop up the 55% of the business it doesn’t own. But the level of bad blood between the Canadians and the British has to be factored into any deal.

It is not clear exactly when the relationship between CanWest and ITV began to fracture, but it reached a low point last November when Hetherington, with CanWest’s support, initiated legal action against ITV over the British broadcaster’s decision to go “free-to-air” on digital platforms in the UK.

This meant Sky’s 370,000 Irish subscribers could tune in ITV regional channels on their dish for the first time and watch the same programmes that dominate the TV3 schedule, including Coronation Street, Emmerdale and I’m a Celebrity . . .

Up to that point, ITV channels, including Belfast-based UTV, had been blocked from Sky’s digital platform in Ireland as TV3 guarded its exclusive right to air the ratings blockbusters in the republic.

These shows are provided to the Irish station by ITV under a programme deal cut in 2001 when the British station acquired its 45% stake for £29m. CanWest is now asking for more than twice that sum.

There is even disagreement about the background to the legal dispute. Some sources claim the decision to sue ITV was taken without being discussed by the company’s board of directors. Others say the move was approved, but only after a hot and heavy meeting of directors during which ITV reminded its Irish offshoot that it would be nothing without its shows.

There are other bones of contention. While both companies are equal shareholders, CanWest has management control through Hetherington, a former executive. In addition, TV3’s ad sales function is outsourced to CanWest Media Sales, a company wholly owned by the Canadians. Profits from this business are repatriated to North America. ITV is unhappy that, in profit terms, one shareholder is more equal than the other.

CanWest is believed to have offered its stake to ITV on a couple of occasions over the past five years. Each time, the British broadcaster has declined the offer on the basis that the Canadians are seeking too much for what is seen as a fledgling television channel in a small market.

Frustrated by what it sees as ITV’s intransigence, CanWest’s management went public last week in what has been interpreted as a bid to break the logjam.

Charles Allen, ITV’s chief executive, so far has refused to comment on his plans. He is said to be happy to wait on the sidelines for a rival bid to emerge before deciding if he will match it or let the opportunity pass.

Potential suitors are thin on the ground. BSkyB, in which News International, owner of The Sunday Times, has a 35.3% stake, and Setanta, the Irish sports channel, have been mooted as possible bidders, but neither is thought to be a serious contender. Sky flirted with buying Five, the British terrestrial channel, but its focus seems to be on broadband and other new technologies.

Setanta has a wealthy backer in American venture capital firm Benchmark, but remains a fledgling business. RTL, the owner of Five, is a possible contender, but has shown no interest in this market to date.

()UTV, however, is a real runner. The Belfast broadcaster, headed by John McCann, is thought to be interested in investing in TV3, but only if it can gain clarity on its programming deal with ITV. This is believed to expire in 2007 although TV3 would not confirm this.

UTV is saying nothing, but industry sources said it sees huge potential for cost savings from sharing production facilities and possibly establishing an all-Ireland news-gathering team. There would also be potential savings in sales and marketing and other back- office functions.

UTV already generates about 25% of its television revenues from the republic and has 60% coverage of the market, primarily via cable and terrestrial overspill in border areas. A deal would make sense.

Its strategy might also see it reschedule programmes, such as Coronation Street and Emmerdale, so the slots don’t clash, as is currently the case. In effect, TV3 could become a “UTV2”, according to some observers, albeit maintaining a strong local news and current affairs output.

Ironically, UTV was an original backer of TV3 but got cold feet in advance of the launch in 1998, opening the way for CanWest to take a big shareholding.

Mark Hannon, an analyst with Davy, believes UTV would be an interested bidder. “It stands to reason that it might acquire TV3,” Hannon said. “TV3 is of interest to it and a merger or acquisition seems logical.”

Acquiring TV3 probably would require UTV to launch a rights issue, Hannon said. It currently has free cash flow of £8.5m a year and accumulated debt of £110m, primarily from spending more than €70m buying five radio licences in the republic and acquiring the Wireless local radio group in the UK last year.

Regardless of who gains control, senior staff are relatively upbeat about new ownership. They argue that costs have already been pared to the bone. Employees recently received letters from management informing them that their mobile phone allowances were being cut by 20%. “There’s not much left to cut,” said one staffer.

ONCE derided as “Tallaght TV” by RTE staffers, TV3 has slowly established itself as a serious player in the €267m Irish television market. Helped by its ITV ratings blockbusters, TV3 has secured an 11% share of viewers, placing it second only to RTE1.

Without ITV’s programmes, TV3 would be a flop. Figures for the year to August 2005 have yet to be published, but it is understood the company had earnings before interest, tax, depreciation and amortisation (Ebitda) of close to €15m on turnover of about €48m. Its Ebitda has increased by 50% over the past two years, illustrating the traction it has achieved with advertisers.

“We’re hoping that ITV will buy it rather than Denis O’Brien,” said one senior staff member. “It has far more financial muscle. Everything here has always come down to money, and we’ve never had the money to outbid RTE or to really push the boat out on programming. So if ITV does buy us, then we’ll finally be able to go head-to-head with RTE for rights. This could make the station.”

But remember, it’s a soap opera. Anything could happen.