Granada moves to mop up TV minnows

Granada wants to double its stake in the Republic of Ireland's first private sector broadcaster as it seeks to further expand its television empire following last week's announcement of its £2.5bn merger with Carlton.

A deal to take control of TV3 in Ireland could signal Granada and Carlton's intention to mop up the remaining parts of ITV and quickly create a single national network. Four ITV franchises – Grampian, Scottish, Ulster and Channel – fall outside the Carlton-Granada deal.

Granada already owns 45 per cent of TV3 in Ireland but is keen to buy out the 45 per cent stake controlled by CanWest Global Communications, the Canadian media group that has £1.7bn of debts. The stake would be worth around £31m.

CanWest also has a 29.9 per cent stake in Ulster Television.

It is understood Granada contacted CanWest over the weekend about acting on a buy-out option it has over the Canadian group's TV3 stake. Though Granada declined to confirm this, Charles Allen, its chairman, said he was "very happy" with the investment in TV3. It is not clear if the discussions included CanWest's stake in Ulster.

Analysts believe Carlton and Granada may also table a fresh bid for the television assets of SMG, the Scottish media group, having failed with a joint £300m offer. It is thought that SMG sought £350m for its Grampian and Scottish ITV franchises.

An analyst said: "The way I see it, there is no point in being half pregnant. If you are going to consolidate ITV you might as well go the whole way, particularly as the Carlton-Granada deal would not be legal until the Communications Bill comes into force. You may as well wrap everything up, including SMG and Ulster, otherwise you would have to keep going back to the regulator each time."

Having rejected the Carlton-Granada bid for its TV interests, SMG has since put its Herald newspapers division up for sale. But this decision was made before the Carlton-Granada deal was announced. "They could decide to build a business just around their radio interests like Virgin," one analyst said of SMG.

Granada's interest in taking control of TV3 shows that Charles Allen's company is looking beyond the Carlton merger as it seeks to drive its television business forward after years of under-achievement. TV3 has worked well for Granada, which is a major supplier of programming such as Coronation Street to the channel. Though not part of the ITV network, TV3 would give Granada greater economies of scale and further reach with advertisers.

The other 10 per cent of the company is held by a group of Irish investors linked to the Irish rock brand U2. They include Paul McGuinness, the band's manager, James Morris, who owns the Windmill Lane recording studio where U2 have recorded many of their albums, and Osmond Kilkenny, the band's former accountant.

Carlton and Granada are expected to announce further details of their merger this week. The deal has met a mixed reaction from major advertisers. Some have said they would be in favour of a stronger ITV network as long as the two advertising sales houses were kept separate to ensure more competition. But others, such as Procter & Gamble have opposed it. P&G, whose brands include Ariel and Pampers, said over the weekend: "If ITV were to merge, one would have to reconsider one's options. ITV is a very important way of reaching huge audiences quickly, so it is difficult to eliminate from the schedule. But yes, we would be more inclined to look elsewhere."

Under the terms of the deal Granada shareholders will control 68 per cent of the merged entity and receive £200m in cash. Granada shares fell 2.5p to 70p. Carlton was down 3p at 125.5p.