ITV is actively considering the future of its ITV Studios production arm, including whether to sell a stake in the maker of the island of love and Bodyguard to help lift the broadcaster’s depressed share price.
The London-based company recently expressed interest in ITV Studios in what remains a relatively buoyant market for production assets, according to people familiar with the talks.
Even before the approaches, chief executive Carolyn McCall had weighed options for the Studios business, which analysts and executives say could be worth more than the £2.5bn market capitalization of parent company ITV, the UK’s largest commercial broadcaster.
A person who had discussed a sale of studios with McCall said she was “totally fed up” with the stock market looming over the company and was “ready to do something about it.”
An ITV insider said a sale was likely to remain unlikely due to long-standing resistance to breaking the group’s integrated broadcaster-producer model, but added that the valuation gap made the option ” impossible to ignore”.
ITV Studios, which acts as a holding company for around 60 independent labels in 13 countries, is one of the largest producers of scripted and unscripted shows in Europe. ITV continues to seek acquisitions and has acquired a majority stake in Plimsoll Productions, the maker of natural history programs behind A year on planet earthfor £103.5million in June.
Potential buyers include private equity groups and other major independent producers such as Bertelsmann’s Freemantle or FL Entertainment, Banijay’s parent company.
ITV said its board is “constantly reviewing opportunities to increase shareholder value, but we do not comment on speculation”.
Since ITV embarked on an ambitious wave of acquisitions to grow its production arm more than a decade ago, the broadcaster has made periodic assessments of a possible divestiture or sale.
The fall in ITV’s share price since 2015, which has wiped out more than three-quarters of its market value, has rekindled the appeal of a deal that could help reset market expectations of the broadcaster’s potential.
McCall acknowledged in July that she was looking for ways to bring ITV out of the shadow of its legacy broadcasting business. “I really don’t think we’re recognized not just for the value of the Studios business, but actually for the strength and resilience, and actually how much money the broadcast business generates,” he said. she declared.
Studios’ operating margin of 13% in the six months to June is significantly higher than industry peers. Citi analysts estimated this summer that the studios could be worth around £3bn, based on comparable valuations of production companies.
Some analysts have argued that the sale of part of the studios would highlight the breadth of ITV’s assets – which spans traditional TV, production and ad-supported streaming – and set a ‘benchmark’ to grow. the valuation of the whole group. ITV is launching its new ITVX streaming platform this fall.
The studios reported revenue of £1.8bn last year and adjusted profit before interest, tax and amortization of £215m, which is expected to reach £246m in 2022. Only about a third of its sales are commissioned by ITV and most of its revenue is now generated outside the UK.
While the steady stream of ITV commissions is one of the highlights of the production business, pricing could lead to potential complications for any minority partners in the future. ITV, meanwhile, may be reluctant to cede control of Studios in a joint venture.