Can smashing two beleaguered companies together create a single successful one? This is the question raised by cable operator NTL’s admission that it is seeking talks over a possible tie-up with ITV. It is also pertinent in the rather improbable scenario of an amalgamation between supermarket groups Sainsbury’s and Morrisons, a rumour doing the rounds in the City this week.
Firstly, it is hard to imagine what kind of organisation would be produced from a conjunction of two dinosaurs of the television world. It is as yet unclear whether the talks initiated by NTL are for a full-blown merger with ITV or for some kind of content-sharing deal. But neither company has shone in recent times.
NTL has been let down by its sub-standard customer service and inability to win new cable customers, except through taking over rival Telewest. ITV has suffered from weak programming on its main channel (though with notable exceptions such as the X Factor), a lack of creative direction, declining advertising revenues and a collapse in its share of audience – ITV 1’s audience fell 17% in July. To unite NTL’s poor distribution with ITV’s mediocre programme making does not sound like a recipe for success.
Let us not forget, however, that Sir Richard Branson is an 11% shareholder in NTL, which has just bought Virgin Mobile. The new-look company is re-branding as Virgin Media, with a ‘four-play’ offer of mobile, broadband, fixed-line telephony and cable TV. You might think that the company ought to get that task out of the way before moving onto its next merger. But it would pay NTL to move quickly before ITV’s share price jumps up with the announcement of a new chief executive.
Branson has long dreamt of having a hand in producing television content. With his undoubted creative flair, perhaps he could help spark a much-needed television renaissance at ITV.
So what of amalgamating supermarket groups Sainsbury’s and Morrisons? To be fair, they are not both complete basket cases. Sainsbury’s is experiencing something of a revival under new chief Justin King, though whether it can keep up the momentum remains to be seen. On the other hand, Morrisons has never quite recovered from the botched Safeway takeover and continues to lose market share.
With Sainsbury’s taking a 16% share of the grocery market and Morrisons 11%, a combined group would still trail Tesco, which dominates with 31% (TNS Worldpanel). Even so, there would doubtless be competition concerns.
The prowess of Sainsbury’s in the South would make a good match for Morrisons? northern strength. The combination of JS’s reputation for quality with Morrisons’ no nonsense value image could make for an interesting mix.
Both merger scenarios would stave off the threat of private equity takeovers for the parties concerned, which may be one reason they are being floated. Even though necessity forces these players together, a revival for their fortunes could result. But combining two negatives rarely creates a positive.