LONDON (HedgeWorld.com)–Once considered glamorous and famously described by Lord Thomson as holding a license to print money, ITV, Britain's leading commercial terrestrial television broadcaster, is now attracting hedge fund interest with the stock's recent fall below 100 pence.
In March, the stock rallied sharply after a consortium linking Blackstone, Apax Partners, Goldman Sachs and former BBC director general Greg Dyke offered to buy ITV for 130p per share. Management, with the less-than-unanimous backing of key shareholders, succeeded in deflecting the ?? 1/2 5 billion bid ($9.1 billion) as the shares rallied to 127p the day after the offer's disclosure on volume of 414 million shares– 10% of the issued stock.
Since then it has been downhill all the way. ITV has sunk to as low as 95p, marking a 52-week low and a record low vis-?? 1/2 -vis the market. This has come despite apparent interest from buyout group KKR, which last year brought Clive Hollick, who as the former chief executive of United News & News sold several ITV regional franchises in 2000.
With at least two bidders biding their time, some hedge funds are taking long positions in the stock. "We are happy to buy when the stock falls below 100p," said a principal with a top London market neutral fund. The same fund manager said a new bid might only have to offer 115 to 120p to succeed. "In this climate I think they would get swamped with shares," he added, commenting on how shareholders might respond to a new offer.
Citigroup last week slapped a sell rating on ITV with a price target of 95p. It forecast that ad revenue on ITV1, the network flagship, will fall over 12% in 2006, triangulated between more adroitly run commercial competitors like Channel 4, multi-channel television led by Rupert Murdoch-controlled BSkyB and the license fee-funded BBC.
On a consensus earnings per share forecast of 7.16p, ITV factors in a price/earnings multiple of about 13 on a share price of 95p in late trading on July 17. On estimated cash flow per share of 8.8p, the multiple falls below 11.
