LONDON (HedgeWorld.com)–Once considered glamorous and famously described by Lord Thomson as holding a license to print money, ITV, Britain’s leading commercial terrestrial television broadcaster, is now attracting hedge fund interest with the stock’s recent fall below 100 pence.
In March, the stock rallied sharply after a consortium linking Blackstone, Apax Partners, Goldman Sachs and former BBC director general Greg Dyke offered to buy ITV for 130p per share. Management, with the less-than-unanimous backing of key shareholders, succeeded in deflecting the ?? 1/2 5 billion bid ($9.1 billion) as the shares rallied to 127p the day after the offer’s disclosure on volume of 414 million shares– 10% of the issued stock.
Since then it has been downhill all the way. ITV has sunk to as low as 95p, marking a 52-week low and a record low vis-?? 1/2 -vis the market. This has come despite apparent interest from buyout group KKR, which last year brought Clive Hollick, who as the former chief executive of United News & News sold several ITV regional franchises in 2000.
With at least two bidders biding their time, some hedge funds are taking long positions in the stock. “We are happy to buy when the stock falls below 100p,” said a principal with a top London market neutral fund. The same fund manager said a new bid might only have to offer 115 to 120p to succeed. “In this climate I think they would get swamped with shares,” he added, commenting on how shareholders might respond to a new offer.
Citigroup last week slapped a sell rating on ITV with a price target of 95p. It forecast that ad revenue on ITV1, the network flagship, will fall over 12% in 2006, triangulated between more adroitly run commercial competitors like Channel 4, multi-channel television led by Rupert Murdoch-controlled BSkyB and the license fee-funded BBC.
On a consensus earnings per share forecast of 7.16p, ITV factors in a price/earnings multiple of about 13 on a share price of 95p in late trading on July 17. On estimated cash flow per share of 8.8p, the multiple falls below 11.
Such is the broadcaster’s prodigious ability to generate cash that it has upped share buybacks to ?? 1/2 500 million this year from the ?? 1/2 300 million expended in 2005. That amounts to about 13% of ITV’s market capitalization, and came on top of a ?? 1/2 325 million contribution to reduce its IAS-19 pension fund deficit.
Market watchers note that first-half figures due in September will be better than the market expects, helped by cost reductions. “Excluding all the stuff you hear in the press, the numbers won’t be that bad,” said one investor.
Multi-billion pound bids don’t usually materialize in the dog days of summer. But it would be odd indeed if some of ITV’s biggest shareholders–Fidelity with 12.6%, Brandes Investment at 7.6% and GLG Partners’ long-only Capital Appreciation Fund at 2.5%–were not considering the network’s future and that of the management team headed by Charles Alan, the chief executive. The only thing that might derail a new offer for ITV could be a management shake-up led by Mr. Alan, dubbed the great survivor, being shown the door.
However, shareholders might prefer cashing out at a 25% premium to the current valuation rather than weather a management bloodbath and further months of uncertainty. The private equity backers of Mr. Dyke and Lord Hollick might also consider it opportune to mount a leveraged buyout of ITV while credit markets remain benign.
Contact Bob Keane with questions or comments at firstname.lastname@example.org.