The Nuclear Option for ITV

Michael Hedges September 28, 2009 Follow on Twitter

There’s a problem at ITV. There’s also a problem surrounding ITV. The shareholders need to solve both. That might mean the nuclear option.

ITV is the big commercial television broadcaster in the UK. It also has a public service requirement and a variety of covenants, exceptions and duties. It’s latest problem surfaced last week when CEO candidate Tony Ball was turned down. The money – and power - he wanted was excessive. Almost immediately Chairman Michael Grade, who had resigned as CEO earlier, said he’d be gone in four months. He’d planned to hang around until a new CEO was named. You could almost hear him saying “I’m not sitting through another one of those meetings.”

Talks between ITV’s search committee and Mr. Ball, formerly head of BSkyB, died (September 25) died when Mr. Ball objected to the proposed appointment of Sir Crispin Davis to succeed Mr. Grade. Then there was the little bit about £25 million in guaranteed bonus money. If the ITV shareholders wanted to see magic happen, as Mr. Ball performed on BSkyB, it would be expensive…payments up front.

When Michael Grade was named to lead ITV shareholders - and the entire UK media frame -expected magic. Not a few observers expected – after the windows were washed and doors oiled – a financial savior to swoop in. RTL was mentioned. Disney was mentioned. Russians were mentioned. ITV’s financials worsened as ad revenues plunged. Then the UK economy took a hit. Potential buyers vaporized.

So, the shareholders faced the worst of all worlds. They’d have to operate ITV, negotiate better terms with the UK regulator OFCOM and pray for sunshine. Hiring a big ticket CEO, said the very conventional thinking, would give a boost to the share price.

Tony Ball – and now all others on the short list – figured this out. The job is impossible – all things considered – so why not ask for the moon and stars in advance. Anyway, he’s already a millionaire.

Now ITV’s shareholders – Fidelity Investments, Aviva, Legal and General and others - will either call a new headhunter or promote from within…or both…and hold on for dear life. They could, however, stop the madness with one phone call. Perhaps, metaphorically speaking, it’s time to call Henry Kravis.

Henry Kravis is co-founder and leading partner of private equity giant Kohlberg, Kravis, Roberts (KKR). He knows a bit about TV, having partnered with Permira Advisors to buy ProSiebenSat.1 for just under €6 billion three years ago. But this isn’t specifically about Henry – Mr. Kravis to you. He doesn’t take phone calls.

It’s about the one fine attribute of private equity takeovers. These guys don’t suffer fools. They force boards to do things they otherwise wouldn’t think of…painful things, nasty things, things that work. KKR specializes in leveraged buyouts of mature businesses.

Right now ITV’s shareholders need to consider the nuclear option. One phone call. Boom.