Cable operator NTL was last night believed to be thrashing out the financing for a possible £5bn offer for ITV in the knowledge that only a cash bid for the commercial broadcaster is likely to succeed.
The heavily indebted NTL is likely to need to borrow all the funds required to take over the struggling ITV, which is trying to convince its suitor it is worth more than the 111p at which its shares closed on Friday night. Advisers to both sides met on Friday and have kept in contact as attempts are made by NTL executives to present terms to their counterparts at ITV.
The approach by NTL - in which Virgin's Sir Richard Branson is a big shareholder - has led to concerns that it will make appointing an ITV chief executive even more difficult given the uncertainly created by a bid situation. However, the broadcaster is determined to press on with the appointment process despite suggestions that one of the candidates, Michael Jackson, former chief executive of Channel Four, has been lined up by NTL to run ITV if its bid is successful.
Questions about how NTL would pay for ITV have been at the forefront of investors' minds since the company admitted last week it was considering a "possible combination transaction" with ITV.
US investment banks Goldman Sachs and JP Morgan are advising NTL and are thought to be considering supporting a fundraising that could double the debt held by the operator to at least £10bn. Investment bankers at Lazard spent the weekend keeping the board of ITV, chaired by former HBOS banker Sir Peter Burt, informed of progress in the talks. This year Sir Peter turned away a 130p a share offer from private equity house Apax, which was also backed by Goldman Sachs.
Investors in ITV are now trying to gauge whether 130p is a floor or a ceiling in any subsequent bid for the broadcaster, which was created through the merger of Carlton and Granada three years ago.
NTL is reported to be working on a plan that would allow it to pay 120p a share for ITV. While NTL is likely to structure a deal that would involve its shares, which are listed on the Nasdaq exchange in New York, its advisers know that most ITV shareholders are likely to demand cash rather than US-quoted shares.
Attention is focusing on Fidelity, the fund management group which has traditionally owned 14% of ITV and 6% of NTL. The US group has played an important part in the creation of ITV. It ensured the Carlton boss Michael Green did not play any role once the merged group had been created. City sources noted, though, that it appeared Fidelity had been reducing its stake in the broadcaster in recent days. An announcement to the stock exchange on Friday appeared to indicate that its holding now amounted to only 11.5% of ITV.
While the focus is on NTL's attempts, other bidders may yet emerge. Private equity firms such as Kohlberg Kravis Roberts have been mentioned, as have trade bidders such as RTL and Time Warner.
Even before the NTL approach was revealed by the Guardian's media website last week, the ITV board was under pressure to name a chief executive after searching for a replacement for Charles Allen, who left the top job in the summer.
While a number of media executives have been linked with the role, including Mr Jackson and Stephen Carter the former media regulator, no one has been named to fill the post. Meanwhile NTL's chairman James Mooney has been awarded more than 1m shares worth about £15m. Neither ITV nor NTL would comment last night.
Backstory
ITV is suffering from a declining audience and plunging advertising revenues. UBS, the company's house broker, has predicted advertising on the flagship ITV1 channel will fall by a bigger-than-expected 13%. While programming and advertising go hand in hand, there is a debate in the industry about whether viewers left ITV because they could find nothing to watch or because ITV lost out to other outlets such as digital TV. Even so, media experts believe that better programming might help attract advertising back to the broadcaster. The company has always had a tricky relationship with the City. Investors ensured Carlton's Michael Green would not have a role, while Charles Allen, who was chief executive was often said to be on borrowed time.