Analysts: Liberty Global Could Buy Control of ITV Down the Line

LONDON – After John Malone‘s international cable operator Liberty Global on Thursday announced an $825 million deal to acquire a 6.4 percent stake in U.K. TV giant ITV from BSkyB, analysts discussed whether it could could raise its stake or buy full control down the line.

Liberty Global earlier in the day had said it was currently not planning to buy ITV outright, but left its options open.

Wunderlich Securities analyst Matthew Harrigan suggested that the deal mostly showed that Liberty Global was “opportunistic on content and relationships.” The stake “should fortify Liberty Global’s relationship with ITV as it emphasizes amity with broadcasters within its overall content strategy approach,” he added.

Others predicted that Liberty Global could find ITV an interesting place to invest more over time.

“‎We would not expect an immediate bid,” said Liberum Capital analyst Ian Whittaker. “But Liberty Global’s purchase suggests it may be interested in acquiring the asset at some point as Virgin Media, which Liberty owns, tried to do nearly a decade ago.”

He added: “It is hard to read this move as anything other than an indication of its longer-term intentions. At the very least, it sends a signal to other potentially interested parties that they would face a possible fight for the asset.”

Reiterating his “buy” rating on the stock of ITV despite its gain on Thursday, he said: “ITV is now likely to be seen as a potential M&A story, especially given recent news flow in the media sector.”

The comment was a reference to 21st Century Fox’s failed $80 billion bid for Time Warner, which had emerged on Wednesday.

Nomura analyst William Mairs cited Liberty Global’s recent appetite for content deals as a reason to suggesting it could see benefits from controlling ITV’s growing TV production business. “ITV Studios (23 percent of 2014 revenue) would appear to be the most-prized asset within the ITV group with this building on Liberty Global’s recent joint Discovery Communications acquisition of the [U.K.] content business All3Media,” he said.

Liberty Global has also been considering a joint deal with Discovery for a 49 percent stake in the Formula One racing circuit, according to sources.

Mairs emphasized that the 6.4 percent stake in ITV “will not grant Liberty Global any influence over ITV to use its content — separate Liberty/ITV content agreements would be required.” He added: “As a result, we would consider this to be part of a wider longer-term strategy for Liberty Global to ultimately increase its position in ITV to gain control over ITV and therefore its studios business.”

Should Liberty ultimately look for and gain control over ITV, the most likely way of benefiting from ITV’s content would be to “leverage this onto the Virgin [Media] platform,” the U.K. cable giant Liberty Global acquired last year.

For example, newer ITV hit shows like Mr. Selfridge, starring Jeremy Piven, “could be aired initially on the Virgin platform and later shown on the free ITV1 channel,” the analyst suggested.

Sanford C. Bernstein analyst Claudio Aspesi similarly wrote in a report that Liberty Global’s ownership of Virgin Media was likely driving its interest in ITV.

In addition to the benefits of owning more content, he said a deal could also have pure financial advantages.

“Liberty Global may be the natural owner of ITV due to Virgin Media ‘s U.K. deferred tax assets totaling $7.9 billion (£4.6 billion),” he said.‎ “We project ITV taxes in 2015 to be $300 million (£175 million) and rising over time. However, in order to benefit from the deferred tax assets, Liberty Global would have to raise its stake to 75 percent.”

Whittaker said he “would not expect any regulatory issues from any bid.” He explained: “Virgin Media operates in the pay TV and broadband space of the U.K. market, and ITV is in free-to-air TV and there is very little overlap. Virgin Media would also not be allowed to withdraw ITV1 from competitors due to must-carry rules. So we do not see any regulatory reason why any eventual bid would be blocked.”

Email: Georg.Szalai@THR.com
Twitter: @georgszalai