A small ITV outpost attracts big names

Why would some of Britain's top media companies want to buy a tiny ITV franchise in the South-west of England? The question is raised by the quite extraordinary response to the auction of Westcountry, licence holder in Devon and Cornwall, which has attracted at least four serious bids ranging from just under pounds 40m to perhaps as much as pounds 70m.

The answer, as usual, is complicated. Certainly the freer ownership rules in the new Broadcasting Act are one reason. Further consolidation of the ITV sector is not only likely but was actually anticipated by the Government when it set the new liberal limits.

But for each of the bidders the rationale is slightly different. For HTV, licence holder in Wales and the West, Westcountry is attractive as a relatively cheap way of expanding its ITV empire. The Welsh company has put in a low-ball bid, pitched at less than pounds 40m, which would allow it to add 2 percentage points to its share of national advertising revenues and give it room to make cost savings by combining some operations.

There are at least three other serious bids on the table - from United News & Media, Carlton and CanWest, the Canadian broadcaster that failed to win the new Channel 5 terrestrial TV licence last year.

The two giant ITV companies have no great interest in Westcountry on its own. Carlton Communications, which owns the Central and London weekday franchises, has its eyes firmly on HTV, the bigger fish, which has been in the takeover frame for the better part of a year. Holding back Michael Green, Carlton's chief executive, has been the soaring stock price of HTV, now heading towards pounds 4. Westcountry is a side show to the main event: nice to pick up if the price is right, but certainly not crucial on its own.

The same strategy is being pursued by United News & Media, with the added nuance that UNM is fighting a rearguard action to protect the business of its sales house, TSMS, which currently sells on behalf of both Westcountry and HTV, in addition to its own franchises, Anglia and Meridian. A bid by Carlton for HTV, and the loss of the (admittedly tiny) business represented by Westcountry, would combine to take significant market share away from TSMS.

The wild card bidder is believed to be CanWest, which has been desperate for a foothold in the UK broadcasting sector. Very successful in its home market of Canada, and increasingly preoccupied by its stake in the Ten Network in Australia, CanWest has been looking at the UK in earnest since the early 1990s.

At least one other bid was submitted last week, and it came from a surprising corner: GWR, the commercial radio company. But, after word leaked out that the modest-sized company had been eyeing Westcountry, GWR's advisers were forced yesterday to deny any intention of proceeding with an offer. Despite a desire to expand out of radio, where GWR is already scraping the ceiling on the number of licences that can be held by a single company, the prospect of paying over the odds for its first television company was enough to scupper the plans.

There is still a huge question mark, therefore, over the price Westcountry's owners are likely to get. Its backers, particularly Daily Mail & General Trust, are said to be looking at other television options, and are ready to sell out if the price is right. But some analysts suggest it is the cloudy profits outlook for the small company that is really behind the decision to sell.

Westcountry currently benefits from the small ITV companies subsidy and receives cash from Channel 4 under the controversial levy system. Together, the payments are equal to the company's total profits. There is an expectation that both sources of income could be phased out within three years, leaving Westcountry with an uncertain future.

In the end, it could be that Westcountry decides to go for a stock market flotation after all, eschewing what it probably feels are low-ball bids and too much negotiation through the press.

Quest for the South-west

THE TARGET

Westcountry

Owners: Daily Mail & General Trust; Brittany Ferries; South West Water; employees

Business: ITV licence holder for the South-west of England

Market capitalisation: private company

Headquarters: Plymouth

THE BIDDERS

HTV

Business: ITV licence holder for Wales and the West

Market capitalisation: pounds 330m

Carlton Communications

Business: ITV licence holder for London (weekday) and Central; also owns cable channel Carlton Select and film processing companies

Market capitalisation: pounds 2.8bn

United News & Media

Business: ITV licence holder in the South (Meridian) and Anglia; also owns Express Newspapers

Market capitalisation: pounds 3.1bn

CanWest (and partners)

Business: international broadcaster based in Winnipeg, Canada

Market capitalisation: C$1.9bn (pounds 1bn)