As ITV Takeover Rumors Climax, How Likely Is a Sale?

Hit drama series “Rivals,” which debuted to great fanfare on Hulu and Disney+, follows the fortunes of genteel television boss Lord Tony Baddingham (played by David Tennant) as he fights to preserve his independent commercial television station Corinium.

It’s a drama that ITV boss, Dame Carolyn McCall, may well be watching closely. McCall, who has presided over the U.K.’s biggest commercial public service broadcaster (PSB) since 2018, is reportedly weighing up selling the media conglomerate, either in its entirety or piecemeal. The latter would see her spin off production arm ITV Studios — whose hits include, amongst other fare, “Rivals” – to the highest bidder.

Over the weekend, a well-sourced Sky News report suggested that McCall is open to entertaining bids, with a number of potential suitors holding “early-stage discussions” about throwing their hat in the ring. According to the report, these include CVC Capital Partners and a European broadcaster believed to be Groupe TF1. Meanwhile, All3Media (owned by RedBird Capital) and Mediawan (backed by private equity firm KKR) are said to be interested in ITV Studios.

At the time of Sky’s report, ITV’s shares were valued at 65.5p, resulting in a market cap of £2.51 billion ($3.15 billion). Since rumors of a possible takeover have climaxed, shares have risen to 70.2p, peaking on Monday at just under 72p.

But Francois Godard, senior media analyst at Enders, cautions that such mergers and acquisitions are not always straightforward. “We’ve seen it’s not so easy to build European coalitions that work,” he says, citing RTL’s sale of Channel 5 in 2010, or Mediaset which he says is “doing fine in Italy and Spain” but was “never able to build synergies.”

So how real are rumors of a takeover? “Everybody’s talking to everybody right now,” a senior executive tells Variety, referring to Banijay, Fremantle, ITV, All3Media and Mediawan. “All the options are on the table, including spinning off ITV Studios and selling it separately.” Another executive says a sales process hasn’t officially been launched, but one could materialize in the coming months if a solid offer comes along. ITV has not yet commented on the matter.

It’s not the first time a sale of either ITV or its production arm has been mooted. The Financial Times notes that “chatter about whether ITV will be taken over has aired on and off for nearly 20 years.” In 2006, cable broadcaster NTL (later Virgin Media) attempted to acquire ITV for £4.7 billion although it ultimately fell through.

Two years ago, the industry was awash with rumors about an impending sale of ITV Studios, by far the company’s biggest asset, with potential buyers said to have included Fremantle or Banijay parent company FL Entertainment. At the time, analysts said Studios was worth around £3 billion – more than ITV as a whole – based on comparable business valuations.

Under McCall’s steady hand, Studios has increased revenues since 2017 to nearly £2.2 billion last year, a jump of 37%. The investment in Studios was clear with its acquisition of natural history producer Plimsoll Productions for £103.5 million in 2022. Traditionally, the market worth of an asset is about 10 times its EBIDTA (earnings before interest, taxes, depreciation and amortization), but in the case of ITV Studios, it could be worth significantly more. Earlier this year, Jeff Zucker’s RedBird IMI acquired ITV Studios competitor All3Media for $1.45 billion — approximately 12 times its EBITDA value — which may have sparked renewed ambitions for ITV.

At the peak of the 2022-23 sale rumors, McCall told Variety definitively: “ITV Studios is not for sale,” citing, among other things, the group’s integrated broadcaster-producer model. This means ITV gets multiple bites of the cherry when Studios makes a show, sells it to one of its internal networks and then licenses it out internationally. “I don’t think the stock market understood how the money was giving us return,” McCall said. “It was really accretive.” Eventually, the rumor mill wound down and no sale ever emerged.

However, the production sector has taken repeated blows over the past 18 months due to a lethal combination of shrinking commissioning budgets, increased production costs and the lingering effects of the Hollywood strikes. All of which meant that in her most recent earnings call, McCall admitted that ITV Studios revenue had dropped by 20% in Q3, from £1.5 billion £1.2 billion (which she largely blamed on strike-induced delays). Which is why a sale might look much more attractive right now.

“ITV is testing the marketplace to see what it could get for ITV Studios,” says Enders’ media analyst Godard. “It’s not dissimilar to what Vincent Bolloré did when Vivendi put Universal Music Group on the market, or what it’s doing now by listing Canal+ separately at the stock market, and I think the reasoning is probably close to what ITV has in mind, which is to unleash the full potential of ITV Studios alone, assuming its value is trapped in the global market valuation for ITV.” He adds, however, that ITV’s shareholder structure is more fragmented than Vivendi’s, meaning it may “take a while for everyone to be on board.”

Overall, ITV reported an 8% drop in group revenue in Q3 from £2.9 billion to £2.7 billion. Partly that was due to a fall in advertising revenue, which the company expects to remain flat in Q4 as companies kept their powder dry ahead of the long-awaited inaugural Labour budget, which finally took place on Oct. 30. ITV is also set to be dealt a further blow when a new U.K. law banning the advertising of junk food before 9 p.m. comes into effect at the end of next year. At the recent Royal Television Society conference in September, McCall said she expects the ban will result in “significant” harm to ITV and other commercial PSBs: “It will affect what we do because it will be millions and millions of pounds off our advertising [revenue].”

During the Q3 earnings call, McCall said ITV is aiming to reduce costs by a further £20 million, which it plans to do partly by cutting content. Earlier this year, the company announced a £40 million cost savings plan fueled by restructuring and layoffs. In February, ITV sold its share of streaming platform BritBox, a joint venture with BBC, for £255 million. “We didn’t look to sell it but we got a fantastic offer and we took it,” McCall said at the RTS conference, adding that the platform no longer aligned with its overall strategy, which is to “expand globally with Studios and to be a really brilliant national broadcaster.”

If ITV is up for sale, it may prove attractive to those who had considered buying fellow commercial U.K. PSB Channel 4 when, under the previous government, plans were in motion to privatize the network. Among those who may have been interested in Channel 4, which was valued between £600 million and £1.5 billion, were Sky, ITV, Discovery and Channel 5 parent company Paramount. With Skydance Media about to merge with Paramount, however, it’s unlikely the latter is looking to pick up another U.K. PSB. If anything, Channel 5 could soon find itself up for sale too.

As a senior media exec tells Variety: “Today, we’ve gone from a fragmented market to a global market where local players are fighting with global ones, so there will inevitably be more consolidation going on.”

Read more about the potential buyers of ITV below.

CVC Capital Partners

The private equity firm has invested in a variety of industries, but is especially known for sports including rugby, women’s tennis and cricket. In 2016, it sold Formula 1 to Liberty Media for $8 billion. Sky reported that CVC could be especially interested in ITV Studios.

TF1

French media conglomerate Groupe TF1 could be eyeing ITV’s broadcasting business, according to reports, particularly its streaming platform ITVX. “I can see why TF1 would want to get its hands on ITV,” a senior media exec tells Variety. “Because it’d fit into the strategy of TF1’s new boss Rodolphe Belmer, who’s on a mission to prevent the decline of TF1 in France, get the merger with M6 back on track and gain critical mass in terms of audiences across Europe at a time when ratings are going down and digital advertising isn’t yet big enough to compensate for the loss in traditional TV advertising.”

All3Media

Recently sold to Jeff Zucker’s RedBird Capital for £1.15 billion, All3Media is one of ITV Studios’ biggest competitors. An acquisition or merger would make the production conglomerate one of the biggest in Europe.

Mediawan

Backed by private equity firm KKR, pan-European media conglomerate Mediawan is looking to go global and could be interested in ITV Studios, particularly its U.S. footprint. A senior media executive tells Variety that Mediawan is “looking to reach critical mass and grow their international footprint, especially in English-language markets.” In 2022, Mediawan acquired a majority stake in Brad Pitt’s production company Plan B Entertainment.