ITV PLC (LSE:ITV) is once again said to be in the crosshairs of a string of potential buyers.
Marking the latest in years' worth of speculation over a takeover for the broadcaster, reports of renewed interest appeared following a drop in ITV shares to multi-year lows.
Ahead of a bounce on Monday, sparked by the new rumours, shares were languishing at 65.5p - more than three-quarters down from 2015’s high.
That’s despite ITV’s reassurances in a third-quarter update earlier this month that its studio wing, which produces programmes, was on course for a record profit this year.
Slowing advertising revenue growth had clouded the figures, alongside news of further cost-cutting, as revenue from ITV’s other main Media & Entertainment wing, including streaming service ITVX, grew.
Studios wing drawing the interest
It's unsurprising that interest, said to be from CVC Capital Partners, RedBird Capital-owned All3Media, Mediawan and France’s Groupe TF1, broadly appeared to circle ITV Studios then, market commentators noted.
“The share price is where it is because there is clearly ongoing doubt as to the traditional model of the company in terms of linear advertising-driven broadcasting,” AJ Bell analyst Russ Mould said.
“I suspect that there's probably more interest in ITV Studios than there is the kind of ‘legacy business’ right?”
Indeed, according to Sky News, CVC, All3Media and Mediawan were all mulling bids for the studio wing, with Groupe TF1 eyeing the broadcasting division through an agreement with the former, offering it a growing English-language streaming service.
Better valuations are seen among separated divisions
Such a split of the two divisions was also already reportedly on the cards anyway, with chief executive Carolyn McCall having sought advice over a potential demerger.
Speculation was that the two divisions could attract better valuations separately, Mould added.
How this would pan out remains unclear though, with digital revenue growth in the nine months to September coinciding with a wider slowdown across ITV’s broadcasting wing.
“Separation of these assets would be difficult and there would probably be ambiguity about getting it right without significant help from within ITV,” Panmure Liberum analysts said.
Short-term headwinds seen disappearing
For the broadcasting business, Mould noted focus would be on digital advertising revenue, from streaming growth, to compensate for the division’s wider downturn.
The profitability of the studio wing was probably “depressed” in the meantime given the ongoing effects from last year’s actors' strikes in the US, leaving upside ahead.
“Opportunistically, studios profitability is probably a bit below where it could be because of the impact of the strikes over the past 12 to 24 months,” AJ Bell's Mould said.
ITV itself highlighted issues as “short-term” headwinds last time out, including the strikes, but also a cyclical downturn in demand on wider economic pressure.
A target for £750 million in digital revenue by 2026 was reiterated too - up from last year’s £490 million.
Overall, Panmure pointed out the bid rumours came after ITV’s recent downturn had left it “very cheap,” with a consensus enterprise value to pre-tax earnings of five times.
“[This] provides some significant breathing room to cut a financially attractive deal,” the broker said.
Shares climbed 9.8% to 71.9p Monday.