pounds 3bn deal heralds media revolution

MATHEW HORSMAN

Media Editor

Two of Britain's leading media companies yesterday agreed to merge in a pounds 3bn deal, marking the launch of the biggest shakeup in the media industry since the introduction of commercial television 40 years ago.

The unlikely marriage of Lord Hollick's MAI and Lord Stevens of Ludgate's United News & Media, brings together national newspapers and commercial mainstream television in a single company for the first time. But the pair may not make it to the altar, as speculation intensified last night that Michael Green's Carlton Communications was poised to launch a spoiling bid for MAI. The frenzied bid action of recent weeks has kept the City guessing wildly, as shares in media companies shot up and rumours flew about the likely outcome of the present consolidation.

The bids follow the Government's plan to liberalise Britain's strict media cross- ownership rules, allowing large, well-capitalised companies to compete effectively at home and internationally. Chief among the changes is the relaxation of restrictions on newspaper groups and television companies from owning each other.

The merger of United and MAI would give the enlarged group control over two ITV franchises - Anglia and Meridian - as well as the Daily Express, the Sunday Express, the Star, regional newspapers including the Yorkshire Post and a lucrative exhibitions business.

Lord Hollick, MAI's chief executive, said: "There are many advantages to combining television and newspapers, not least the prospect for cross promotion." MAI owns a 30 per cent stake in the new Channel 5 television service, and Lord Hollick is keen to use the Express titles to promote the channel. "Rupert Murdoch showed the way when he used his newspapers to promote Sky Television," he said. Lord Stevens, chairman of United, said: "This is the first deal to take advantage of the new broadcasting bill, and as a result we will have a business with a truly global reach."

A ministerial source greeted news of the merger as exactly the kind of move being encouraged by more flexible rules. "Mergers like this one are an aspiration of this Bill," he said.

However, he added the Government disapproved of the "warehousing" methods used to merge ahead of the Broadcasting Bill becoming law. "Paradoxically, the bill will allow this kind of merger but it will outlaw the 'warehousing' deal by which it was done, which we are against."

Because the Bill has yet to be passed, MAI and United have agreed to place Express Newspapers into two "deadlocked" companies over which they have no voting control. Such devices are viewed by the Government as being within the letter, but not the spirit, of the law. Lord Hollick defended warehousing, although he had "sympathy with those who wish to outlaw it".

But City analysts said the timing had more to do with fears of an unwanted approach from Carlton or another bidder. They view the United-MAI merger as purely defensive, and questioned its commercial logic.

Unlikely partners, page 3

Media battles, page 16