The music has stopped playing but Carlton doesn’t have a seat

I think it’s about time the market took a long, hard look at Michael Green. Okay, so it’s true that he started with the Fleet Street Newsletter and built, in Carlton Communications, one of Britain’s most significant programme makers, video duplicators and independent franchise holders.

And, yes, he did all this in developing markets with a heady mixture of flair and opportunism. But the guy is mortal, you know. I say that because there are some within Carlton and elsewhere in the industry who, frankly, are beginning to lose it – I have even heard some usurp Midas by referring to “the Michael touch”.

So, at the risk of heresy, I would like to put in a word of reason and take a critical and cold-blooded glance at Michael Green’s Carlton Communications, just as the City would look dispassionately at any other conglomerate, unencumbered by any luvvie media hype.

The first point to note is that the City has a marked absence of luvvies, if Carlton’s rating is anything to go by. Last week’s closing share price of 10.23 means the shares are trading on about 16 times analysts’ consensus forecast earnings for 1995, and 20 times historical earnings.

By contrast, on their last reported earnings, HTV’s shares trade on a multiple of 55 and Yorkshire Tyne-Tees on a multiple of 60. Some attribute the City’s relative thumbs-down to the lack of glamour attached to the video and film distribution businesses, which offer sluggish growth potential compared with broadcasting and programming. But, given the huge disparity between the ratings of Carlton and its rivals, this is frankly a charitable way of looking at things.

What has greater credibility is the air of uncertainty that hangs over its corporate development. Leftie luvvie Lord Hollick’s MAI has plighted its troth to rightie hard-man Lord Stevens and his United News & Media, potentially denying Carlton cross-media and current-media opportunities. Meanwhile, Granada has upped its interest in Yorkshire Tyne-Tees by 6.1 per cent to take its total stake to 19.9 per cent.

One of the things the City doesn’t like, along with uncertainty, is a tycoon who can’t find a chair when the music stops. Green appears to have been wall-flowered by the frenetic activity of the past couple of weeks.

There is consequently much talk about his “options”. In my experience, commentators only start to talk about options when companies are running out of them or no longer have any. But it is probably as well to run over those that are currently before Green.

He could bid for MAI or United, though not both – even Green will be aware that his balance sheet has limits. That would stop the two Lords a-leaping into bed with each other. It would also appear that the City considers this a not entirely remote possibility. Upward movement in the share price of MAI would seem to indicate the City believes the show’s not over until Carlton sings. Furthermore, Mercury Asset Management, which did for Forte in its stand against Granada, piled back into MAI shares late last week, having piled out of them a week before. MAM, of course, believes that shares are there to be traded, but it clearly doesn’t feel that the action at MAI is over.

There are those who reckon an MAI bid would present insuperable competition problems for Carlton. Green has promised the Office of Fair Trading that he does not intend to try taking Carlton’s share of the TV advertising market above 25 per cent – a combined Carlton/MAI would command about 40 per cent, which would be indigestible for the market and the OFT alike.

More likely, we are told, Carlton might go for United, presenting social problems for Lord Stevens, since Green would be in his peer group without a peerage.

Whoever the takeover targets are, the fact is that Carlton has them as an option. Another option is to follow the current fad for demerger. What’s good enough for Lord Hanson and Richard Giordano of British Gas ought to be good enough for Green. Apparently, it will also shortly be good enough for Thorn EMI, which I intend to write about soon.

Anyway, the point is that Carlton could plausibly demerge its interests to liberate considerable shareholder value from the television franchise interests. At the same time, this would presumably make regulatory life easier if, say, Carlton Programming wanted to bid for a franchise.

But here’s the rub. Green has an autocratic style about him, and there are fears that this could cloud his judgement. Witness the managing directors who pass through Carlton. Bob Phyllis left that chair for ITN. (When Green then took the chairmanship of ITN, Phyllis decided to move to the BBC). Then Keith Edelman, reckoned to be Cyril Stein’s heir apparent at Ladbroke, had a go, but decided to move on to Storehouse after a rather short spell at Carlton. The present incumbent is Jane de Moller, an internal promotion.

One hopes that whatever decision Green comes to over the expansionary plans of Carlton, it won’t be driven by ego. It would be a shame if it all went horribly wrong because he was just trying to keep up with Lord Hollick and Gerry Robinson.