What's In It For Time Warner?

Broadcaster ITV saw shares jump by up to 8% on a report in the Mail on Sunday that media giant Time Warner, Goldman Sachs and private equity group Apax Partners are considering a £6.6bn bid for the group.

"It's not something that's being actively discussed," said a source close to Apax according to Reuters.com. But rumours have "swirled for months" after the buyout group hired former BBC director general Greg Dyke last year.

Time Warner's involvement "helps underpin the challenging deal arithmetic needed to make sense of a bid" for ITV at a rumoured £7bn enterprise value, said Lex in the FT.

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It's easy enough to see why private equity wants to "bring in a wealthy trade buyer", agreed Fiona Maharg-Bravo at Breakingviews.com. But the media giant's motivations are less clear. There are no obvious synergies or non-core assets it can carry away. "Does it want to own ITV long term?" Or is it "after a punt" on a large chunk of the UK media market?

The presence of Time Warner might also make it harder for the private equity group to achieve a trade sale, and even then "it is hard to see how the consortium would make anywhere near a 20% return. Unless it gets a real bargain, it may not be worth its while."

But even if a bid doesn't appear, said Lex in the FT, fund manager Fidelity may put pressure on ITV to announce "a buyback or an increase in its payout ratio." ITV's largest investor, Fidelity owns 30m convertible shares which convert one-for-one into ordinary shares in the event of a bid at 140p or above, and so has a "vested interest" in seeing shares stay above this level