There has been a lot of speculation that Seven Network's British-based shareholder, ITV, might be taken over by a private equity firm.
It is only logical for those of us in Australia to suspect that a financial buyer might want to sell ITV's $170million stake in Seven.
Speculation about ITV is rife in the UK market after comments by Clive Hollick, who sold a business into ITV's Granada in 2002 and is to join private equity firm KKR in April.
Hollick said recently that buying into ITV would have a "nice ring to it".
"I wouldn't rule out anything. We are looking for really good businesses where management could make a difference," he said.
ITV should have £295 million ($727 million) net debt at the end of 2005, on Investec's forecasts.
But it could raise £258 million if it sold its stake in Seven and its interests in football teams Arsenal and Liverpool, ScreenVision USA & Europe, Carlton Screen Advertising and Granada Learning.
If it did so, a financial buyer would probably offer a premium to the present market capitalisation of £4.58 billion and factor in holding on to only £35 million of net debt. ITV is expected to report EBITDA of £467.2 million for 2005 and its annual interest bill should be £30million.
Assuming a 20 per cent premium to the market price is paid and non-core investments such as Seven are sold, a financial buyer would be investing £5.53 billion in the ITV enterprise.
That's an EBITDA multiple of 11.8 times, which was about the average for European M&A transactions in calendar 2004.
Assuming the asset sales, it would appear likely that a financial buyer could regear ITV by borrowing about £3.1 billion to fund its bid and still maintain an interest cover of two times.
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