ITV Stock Hits All-Time High as Analysts Scrutinize Liberty Global Stake

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Liberty Global's John Malone

One analyst asks if any company could consider making a play to buy ITV outright.

The stock of U.K. TV giant ITV on Friday set an all-time high after John Malone's Liberty Global boosted its stake in the company.

ITV shares went as high as $4.40 (£2.82) in Friday trading.

In July 2014, Liberty Global had acquired a 6.4 percent stake in ITV, setting off debate among investors about whether the international cable company may be interested in buying a larger stake or full control. On Friday, the company disclosed that it has increased its holding to 9.9 percent.

Analysts and investors have wondered over the past year if any major entertainment companies in the U.S. or Europe may consider a takeover bid amid the Liberty Global deal.

Liberty Global on Friday said it doesn't currently plan to buy full control of ITV. Also, ITV CEO Adam Crozier has said ITV doesn't plan to sell the company or parts of it and doesn't see the strategic need to be part of a big TV distributor.

Liberum Capital Markets analyst Ian Whittaker said in a report Friday that Liberty Global's latest move "will inevitably ignite M&A talk." He added: "Liberty has stated officially it has no intention of making a bid, but its move suggests it thinks a bid may be coming at some point and it wants influence" or at least "that it thinks a move by another player is likely or, at least, an increasing possibility."

Before the stake increase, Sanford C. Bernstein analyst Claudio Aspesi recently revisited the situation and analyzed in a report if anyone may have the financial firepower and strategic need to bid for ITV.

"The Shopping Channel – Are There Any Buyers for ITV" was the title of his report.

"We think buyers would need to offer £14 billion to £15 billion ($21.9 billion to $23.4 billion), which makes it unaffordable to some buyers," he said. "Lack of synergies in broadcasting represents a significant deterrent anyway." He rates ITV's stock at "outperform" and said the company's networks business is worth about $14.1 billion (£9 billion) and ITV Studios about $6.3 billion (£4 billion).

Aspesi called Liberty Global "The Manchurian Candidate" for buying ITV outright. The company has signaled its "intention to distribute ITV content and is now more focused on a potential asset swap deal with Vodafone." He concluded: "This makes more sense than an expansion into content." However, he noted there are potential tax assets "that could be worth £1 billion ($1.6 billion ) that could be realized should an acquisition occur."

Aspesi called U.S. entertainment companies "The Usual Suspects" for a bid for ITV. "American content producers are obvious candidates, but once we scratch beyond the surface, there are fewer synergies than at first thought," he concluded. "Certainly none of the companies 'need' ITV."

About Viacom, which owns British broadcaster Channel 5, he said it "is in no position to make an acquisition, with little cash ($306 million in cash as of the first quarter)." Plus, "Viacom's ownership of Channel 5 would have likely prevented regulatory approval for two (out of five) of public service broadcasters to be owned by a single entity," he said.

Discovery Communications "already has a bigger presence in the U.K. than anywhere else in Europe via a close relationship with Sky," said Aspesi. "The company has specifically disavowed any interest in owning a British broadcaster." But he added: "We cannot ignore the possibility that Discovery could see ITV become the free-to-air broadcaster in lieu of the BBC."

Comcast/NBCUniversal would see "limited synergies but a lot of execution risk," Aspesi said. "Disney, Fox, CBS and Time Warner are not interested, and Fox would have political and regulatory barriers that make a bid unlikely."

European media giants, such as Germany's ProSiebenSat.1 and RTL don't have the necessary firepower to acquire ITV.

"Vivendi's war chest is still yet to be fully allocated," Aspesi said. "Strategically, the combination of ITV Studios and StudioCanal will make it the biggest TV producer in Europe. However, more than 75 percent of ITV revenues are from free-to-air broadcasting, which does not sit so neatly with the pay TV business at Canal+." Plus, Vivendi management has previously publicly ruled out ITV as "too expensive."

Could private equity firms make a play for ITV? "The company has little debt with good positive free cash that could be ripe for some financial engineering to lever up returns," Aspesi said. "There would even be the option for private equity firms to carve out the more attractive ITV Studios and flip the asset. However, we are less sure of what the exit strategy for a pure free-to-air broadcaster would be given the lack of strategic buyers, and therefore find private equity a less convincing buyer."

Concluded Aspesi: "Deregulation and regulatory upside look more probable than M&A, but neither can be ruled out completely.‎"

Twitter: @georgszalai

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