Do not adjust your set: ITV’s picture still fuzzy

October 13, 2009

Well, that should reassure the doubters: ITV, the British commercial broadcaster that is so careless with its top directors, came to the market on Tuesday to deal with its balance sheet problems. It’s launching one of those increasingly fashionable convertible loan stocks.

It’s not hard to see why. There’s little prospect of the company paying an ordinary dividend any time soon, and the convertible will provide a yield of 4 percent, with the right to convert into ordinary shares at 70.44 pence, a premium of 40 per cent to the current weighted price.

It’s much harder to see what difference this issue will make. It will raise just 135 million pounds, potentially adding less than 5 percent to the current share capital, and taking a tiny nibble from last December’s total liability figure of 2.7 billion pounds. It’s hardly worth the bother, and the issue is so small that it’s likely to be tricky to trade.

Tuesday’s other ITV news was the failure to sell SDN, a business it bought for 134 million pounds in 2005. SDN operates part of the transmission system for terrestrial digital television, and the most obvious buyer is Arqiva, which operates the rest. A purchase would give Arqiva a monopoly, and an unwelcome investigation by the Office of Fair Trading.

So the jury-rigged board at ITV has decided to shift SDN over to the company’s pension scheme, as part of the attempt to plug the 400 million pound hole in the fund’s accounts. The idea is a “partnership” to provide some asset backing for the scheme, while allowing ITV to consolidate SDN’s revenues.

The implication here is that the business – where revenues have crept up from 36 million pounds in 2007 to an expected 40 million this year – is not worth its book value. It may not quite be the diversification disaster that was Friends Reunited, but it’s another small reason why Michael Bishop, the latest grandee to be offered the chair, took one look and fled.

(Updated to include exact terms for the new issue)

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