Adam Crozier’s decision to quit as boss of ITV PLC (LON:ITV) will reignite speculation that a bid is in the offing for the terrestrial broadcaster.
After seven years in the job you could argue that the decision is not surprising.
Crozier has a history of hopping from industry to industry - advertising to football to mail delivery to broadcasting - and, still in his early fifties, he is young enough to take on one or even two more big challenges before he works on the wealthy person’s pension plan, otherwise known as “a portfolio of non-executive directorships”.
Regarding the latter, Crozier has already got his backside on a board room seat as a non-exec director at Costa Coffee outfit Whitbread plc (LON:WTB).
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READ Adam Crozier to quit as boss of ITV at end of June
Nevertheless, the timing is interesting, given that media giant Liberty Global PLC (NASDAQ:LBTYA) has a 9.9% stake in the UK-based free-to-air broadcaster.
A month ago the market got all excited by a regulatory news announcement that revealed Goldman Sachs, acting on behalf of Virgin Media-owner Liberty, had increased its stake to more than 25%.
The excitement subsided when it emerged that, according to Liberum Capital Markets analyst Ian Whittaker, Liberty had not increased its stake and had merely loaned some ITV stock to Goldman who, being Goldman Sachs, did some arcane jiggery-pokery in the market that no doubt will leave the investment bank richer and possibly a European company bankrupt (the ways of Goldman Sachs are mysterious and opaque).
Notwithstanding the above, 9.9% is a decent sized launch-pad for a bid and Liberty Global, run by billionaire John Malone, is not averse to splashing the cash.
The media industry is consolidating at a rapid pace
A bid for ITV would possibly be a riposte to Rupert Murdoch’s scandal-magnet Twenty-First Century Fox Inc (NASDAQ:FOX), which is hacking its way to full ownership of Sky PLC (LON:SKY).
Liberum’s media team does not rule out the possibility of a bid by Liberty, possibly in conjunction with broadcaster Discovery Communications Inc (NASDAQ:DISCA), with which it has close ties.
“The two companies acquired jointly All3 Media (one of the UK’s then leading independent production houses) in 2014 and both Liberty and Discovery have been acquiring European free to air broadcasters,” the broker noted.
Liberum also floats the intriguing possibility that Ian Atkins, the finance director who has now also been made chief operating officer and who is leading the ITV executive team pro temps, might mastermind a break-up of the ‘Coronation Street’ ratings powerhouse.
Atkins has a bit of form in this regard.
“This has echoes of a decade ago when Ian Griffiths was in his previous job at Emap as FD and Emap’s then CEO stepped down,” Liberum said.
“Ian Griffiths and the chairman (Alun Cathcart) ran the company together without a CEO and were responsible for breaking up Emap and selling off its assets at a high price (and just before the 2008 financial crisis),” the broker noted
All of which suggests the game might be up for ITV.
The eight million pound man is quitting while he is ahead
The lavishly remunerated Crozier has done a decent job, executing the plan devised by ITV’s former chairman, Archie Norman, to reduce the broadcaster’s reliance on TV advertising revenues.
Net advertising revenue (NAR) is now less than half of total revenue, but it still accounted for £1.67bn of total revenue of £3.53bn in 2016, and declined gently from the year before.
Online, Pay & Interactive revenues rose 23% year-on-year, driven by increased demand for advertising online, and it is making selective investments in digital content companies, so it is adjusting to a world where the family no longer gathers round the telly on a Saturday night to watch half-remembered celebrities pawn the remnants of their pride for one more spell in the limelight.
The web site More About Advertising is sceptical about Crozier’s achievements.
“ITV now has a selection of digital channels but the main ITV channel still brings in most of the money, at a far lower cost than the expensive forays into production,” it noted.
The aborted tilt in August of last year at Peppa Pig owner Entertainment One Ltd showed that ITV still has to be choosy over acquisition opportunities.
The trouble is that while ITV is picking up small, nimble players in the areas of programme creation and digital content, the big global players are casting around for additions to their portfolio.
Sterling's slide makes ITV look good value to potential buyers overseas
Despite rising 24% in the last six months, the shares, at 210p, are still about 9p lower than they were on the day of the EU referendum vote.
Valued at about £8.5bn ITV is not prohibitively expensive for the global players, especially since sterling’s decline following the Brexit vote.
Apple, for instance, could probably comfortably buy the company out of funds it is reluctant to repatriate to the US where the tax-man might be able to get hold of it, and get its hands on the iTV brand name it covets.
More may be revealed next week when the company releases its fiscal first quarter trading update.
Analysts will be looking to see if there has been any improvement on the outlook for NAR as the UK economy gradually comes to terms with the forthcoming exit from the European Union and whether Crozier, a ruthless cost cutter, has managed to squeeze out any more savings.
Perhaps most importantly the broking community will be looking for signs of whether ITV is going to be the predator or the prey. It is an adage in the City that companies that lack a chief executive are vulnerable to takeover approaches.
“Doing deals to bolster its content portfolio and dilute exposure to cyclical and sometimes volatile advertising revenues has been a key strategic imperative for ITV for some time; however, momentum has been disappointing of late and in our view, this process needs to be reenergised to reinvigorate investor sentiment,” said Shore Capital in a preview of the trading update.
Both Shore and Liberum rate ITV shares as a ‘buy’.