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NTL considers challenge to Sky's £1bn swoop on ITV

LONDON - NTL and its biggest shareholder Sir Richard Branson will this week challenge BSkyB after the satellite TV firm dramatically swooped on ITV on Friday, taking an almost 18% stake in the broadcaster for close to £1bn.

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NTL has said that it will complain to the competition authorities, including the Office of Fair Trading, the European Commission and industry regulator Ofcom, about Sky's £940m purchase of 17.9% in ITV, which it bought from Fidelity and other institutional investors.

NTL will call on the authorities to force Sky to sell its stake. Sky, led by chief executive James Murdoch, has snapped up the stake to stifle NTL's planned £5bn takeover of ITV. It is understood that Branson, who is NTL's single largest shareholder with a 10.5% stake, will argue the move was anti-competitive.

NTL's financial advisers at investment banks Goldman Sachs and JP Morgan are understood to be formulating a response to the move by BSkyB this weekend. The banks have just advised NTL on its merger with Virgin Mobile, which was completed in July when NTL bought the mobile phone brand for £962m, creating one of the UK's largest broadcast and telecoms companies. This gave Branson his stake in NTL. The merged company will combine to create Virgin Media in the first quarter of 2007. 

The fact that BSkyB cannot take over ITV is bound to raise questions from its shareholders about the legitimacy of investing nearly £1bn in a property it will never completely be in control of.
 
In a statement, the broadcaster, which is 39% owned by News Corp, said: "BSkyB has no intention of acquiring shares that would result in BSkyB's stake exceeding 19.9% or making an offer for the whole of ITV's remaining share capital."

Speaking to City analysts on Friday, the chief executive of BSkyB said that his company intended to be a "supportive shareholder" in ITV, but that BSkyB wanted to "explore options to create value in the interests of both BSkyB's and ITV's shareholders", suggesting possible future collaboration between the two broadcasting giants.
 
The acquisition of shares was conducted without the prior knowledge of the ITV board.

Will Whitehorn, spokesman for Branson, said: "Sky has taken a stake in ITV in order to prevent a transformational deal that would have increased competition in the UK. This is a blatant breach, if not of the broadcasting legislation, then of the Enterprise Act."

However, Sky said it took appropriate legal action before it bought the stake, paying over the odds at 135p a share, and was confident that it is "protected" against any Branson-style legal action.

Sky's move does not completely block NTL's merger plans, but it will make them more difficult and more expensive. NTL had planned a 130p bid, valuing ITV at around £5bn. It could now be forced to pay £5.3bn -- what Sky's acquisition of 17.9% at 135p values the company at.

NTL could still buy 80% of ITV, but Sky will get a say in any final deal and it will get a look into its rival's business.

Sky is concerned that a tie-up between NTL and ITV would provide a powerful challenger to its dominant multi-channel position. Under the 2003 Communications Act, Sky is allowed no more than a 19.9% stake in ITV.

In a statement issued this morning, ITV said BSkyB had confirmed to ITV that it has no intention of acquiring shares in ITV resulting in their total stake exceeding 19.9% or of making an offer for the whole of ITV's remaining share capital.

"BSkyB has further confirmed its wish to be a supportive shareholder, working constructively with ITV, and exploring options to create value for all shareholders. The board of ITV looks forward to such discussions with British Sky Broadcasting in due course.

ITV has been without a permanent chief executive since October, with the departure of Charles Allen after 10 years in the post. His position is currently being filled by John Creswell, chief financial officer at the broadcaster, on an interim basis.

There is one other player who could yet have an impact on any merger with ITV. RTL, the European television group owned by German media group Bertelsmann and owns the terrestrial channel Five, is also understood to be watching developments at ITV closely. It has been reported that it may be preparing a bid for the broadcaster, possibly with private equity group KKR. 

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