ITV's Grade in talks over BSkyB stake

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By Kate Holton

LONDON (Reuters) - ITV Executive Chairman Michael Grade has been approached by parties interested in BSkyB’s stake in the free-to-air broadcaster, a source familiar with the matter told Reuters on Monday.

The news boosted shares in the commercial broadcaster by over 15 percent, but analysts still questioned whether any suitor would want to acquire the whole company at a time of regulatory and economic uncertainty.

Satellite group BSkyB owns 17.9 percent of ITV and is currently challenging a ruling by the Competition Commission that it has to reduce that to below 7.5 percent.

The source would not give any further details on how many possible suitors had contacted Grade or how advanced the talks were, but did say he had received good interest.

The co-founder of producer Endemol, John de Mol, told the Financial Times on Monday that he would not rule out a bid for ITV, which had seen its shares slump over 55 percent this year on concerns about the advertising environment.

"This one is an example of a combination that could make sense, depending on the numbers," he told the newspaper, while adding that Endemol would probably buy smaller producers.

Germany’s RTL, which owns Channel 5, has previously been linked with ITV as it has a target of wanting to be either first or second in each market it operates in. .....continued below

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Italy’s Mediaset, which has also been linked with ITV, also declined to comment on Monday, but analysts told Reuters that the group has recently tried to distance itself from any bid.

Media reports have also suggested that broadcasters from the United States and investment group Saban Capital could be interested, as ITV’s shares have sunk so low.

HARD SELL

But analysts still question whether any group would make a full bid for ITV while there is poor visibility on the economic and advertising outlook and as it undergoes two regulatory probes that could affect its earnings.

A key report from the Institute of Practitioners in Advertising on Monday said British marketing budgets had been cut for the third consecutive quarter and to the greatest extent since the September 11 attacks in the United States in 2001.

Separately, the Office of Fair Trading is looking at how much the main ITV1 channel can charge for advertising and media regulator Ofcom is examining whether broadcasters including ITV could drop some of their public service remit.

"With Sky’s stake potentially up for grabs speculation on a bid for ITV continues," Kaupthing analyst Johnathan Barrett said in a note to clients.

"We question whether there is anybody really brave enough to buy ITV at this point given the outlook and valuation. Rumours of Endemol interest are hard to take seriously."

ITV has a market cap of 1.7 billion pounds.

BSkyB, with the then Chief Executive James Murdoch in charge, bought the ITV stake in 2006 at 135 pence a share or 940 million pounds in a deal which effectively blocked cable group NTL -- now named Virgin Media -- from buying ITV.

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