ITV Rejects NTL Offer

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British cable operator NTL’s pursuit of ITV took on several new twists as the United Kingdom’s largest commercial broadcaster rejected its initial offer less than one week after rival British Sky Broadcasting Group was accused of trying to scuttle the deal by buying a 17.9% stake in ITV.

ITV rejected NTL’s $8.9 billion offer Tuesday in a statement to the London Stock Exchange, saying that the offer materially undervalued ITV.

“The board believes that whereas there is obvious appeal to NTL in gaining control of ITV's substantial and successful business, from ITV's perspective, there is little, if any, strategic logic for ITV to combine with NTL,” ITV said in the statement.

While NTL could still sweeten its bid, or back away altogether, this marks the latest in what has been a contentious week for both companies.

On Nov. 19, NTL’s largest individual shareholder -- Sir Richard Branson, who owns 10.5% of the company -- accused BSkyB of trying to block its deal with ITV by buying the stake. Branson called for British regulators to look into the BSkyB purchase. BSkyB announced Nov. 17 that it had purchased 17.9% of ITV for about $1.8 billion.

Branson continued to pour on the heat Tuesday, claiming that ITV’s rejection of its bid was the result of BSkyB’s influence.

“BSkyB claims that its investment in ITV will have no impact on the company's future direction,” Branson said in the statement. “It appears that this share purchase has already had a material influence on the company and damaged the plurality of the British media.”

Earlier in the week, Branson called the BSkyB move a “blatant attempt to distort competition even further by blocking any attempt to create a strong and meaningful competitor.”

BSkyB -- the largest pay TV provider in the United Kingdom, with about 8.3 million subscribers to its direct-to-home satellite service -- was largely thought to have made the move to keep ITV out of its main rival’s hands. Any acquisition of ITV would require a 75% vote from ITV’s board, so while BSkyB’s interest wouldn’t prevent an NTL deal with ITV, it could make it more difficult.

ITV’s rejection doesn’t mean a deal is completely off, and NTL can also look to other programmers, most notably RTL’s Channel 5, a smaller U.K. broadcaster.

“Although NTL has few options left in partnering with ITV, we are not convinced that NTL has exhausted all of its options,” Oppenheimer cable analyst Tom Eagan wrote in a research note.

NTL -- the largest cable operator in the United Kingdom, with about 3.3 million video customers -- said it was engaged in talks with ITV Nov. 9. The deal would have been the third big acquisition in a year for NTL -- in March it completed a $6 billion acquisition of No. 2 U.K cable operator Telewest Global, and in July it completed its $1.1 billion purchase of Virgin Mobile.

BSkyB -- controlled by media giant News Corp. and run by News Corp. chairman Rupert Murdoch’s son, James Murdoch -- has said publicly that it does not intend to seek a seat on ITV’s board of directors and that it would be a “supportive shareholder.”

Under British law, BSkyB is prohibited from owning more than a 20% stake in ITV.

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