Huge task for Dargan at ITV Digital
SHARES in Granada and Carlton leapt on Wednesday as they finally bit the bullet and put their weakest link, ITV Digital, into administration. The decision spells disaster for football clubs, but the City had been hoping for decisive action for some time since the cash-strapped owners failed to make enough progress in their cost-cutting drive.
Carlton rose 5 3/4p to 272p, Granada 4p to 142 1/2p on hopes that they will be able to stop pouring cash into the venture. They were expected to spend at least £300m on it this year, but want to halve the costs. The loss-making pay-TV business is now in the hands of Deloitte & Touche administrator Nick Dargan, who has just two weeks to slash costs and renegotiate broadcast contracts.
If he has not made enough progress by then, the business could be put into liquidation and closed. Granada and Carlton have 'agreed to provide short-term funding' so that subscribers will not see any change to their TV service. They refused to say how long this funding will last, but the High Court has asked for a progress meeting in two weeks, which provides a natural deadline.
Putting ITV Digital into administration protects it from creditors. The court appoints an administrator who takes control. His first duty is to try to save the business. If that is not possible, he will sell the assets to repay as much as he can of the debts.
'It's the best thing for Granada and Carlton,' said Martin Dobson, head dealer at NatWest Stockbrokers. 'They will be happy to be shot of the problem, but whether they face litigation and how badly it affects their shares still has to be seen.'
The two firms billed the process as 'constructive administration' and insisted that they are trying to save ITV Digital.
'Our objective is to emerge with a viable pay-TV business,' said Carlton's chief executive Gerry Murphy. 'If we wanted to close it, it would have happened today.'
The administrator clearly faces a mammoth task. The business could re-emerge purely as a 'free-to-air' service in conjunction with the BBC, or with a very limited pay-TV service.
Top of Dargan's agenda is the £178.5m which ITV Digital owes the Football League, as part of a £315m three-year deal. It wants to reduce this payment to £50m, but the League is threatening legal action.
Dargan will also try to cut the price of programme contracts with BSkyB (worth £65m), UKTV (worth £20m) and Viacom. Dargan previously worked on budget airline Debonair - which went under in 1999 - and on the failed Bank of Credit and Commerce International.
ITV Digital, formerly ONdigital, was launched in 1998. It aimed to compete with BSkyB, but has managed to win just 1.2m subscribers, compared to Sky's 5.7m.
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