ITV in talks over possible £1.6bn deal to sell broadcasting arm to Sky

ITV has confirmed early stage talks over a possible £1.6 billion deal to sell its broadcasting arm to Sky in a move that would see a major shake-up of Britain’s television sector.

Shares in ITV jumped nearly a fifth higher at one stage on Friday after it announced it was in “preliminary discussions” with Sky, later paring back gains to stand around 14% up.

It follows reports late on Thursday revealing Comcast-owned Sky was holding talks with ITV over a possible deal to buy the public service broadcaster’s media and entertainment arm, which includes its terrestrial TV channels, streaming service ITVX and ITV’s 40% stake in ITN news.

The group behind hit shows such as I’m A Celebrity… Get Me Out Of Here! and Love Island said terms of the sale had not yet been finalised and a deal was not certain, although it said current proposals value the broadcasting division at £1.6 billion, including debts.

The sale would not include ITV’s production arm, ITV Studios, which makes shows including I’m A Celebrity and the popular drama Mr Bates vs The Post Office, which has also been the subject of previous sale speculation.

ITV said: “There can be no certainty as to the terms upon which any potential sale may be agreed or whether any transaction will take place.”

Sky declined to comment.

A deal between the pair would be transformative for the UK television sector.

It would see Comcast, which bought Rupert Murdoch’s Sky for £30 billion in 2018, expand its footprint in the UK and Europe and leave FTSE 250-listed ITV focused on its studio operations.

ITV has repeatedly been touted as a takeover target in recent years, with its production arm having attracted interest from rivals and private equity.

Most recently, RedBird IMI – a joint venture between US private equity group Redbird and an Abu Dhabi investment vehicle – was in talks to acquire the division, but withdrew earlier this year.

RedBird IMI had wanted to merge its All3Media business, which it had bought last year, with ITV Studios.

ITV chief executive Dame Carolyn McCall has also reportedly been looking at a demerger of the company’s two main business units to boost the firm’s flagging share price.

The group’s shares had come under further pressure on Thursday after it warned over a hit to advertising from uncertainty before the upcoming Budget.

ITV expects total advertising revenues to slump by around 9% over the final three months of the year as many businesses pause spending before the Budget, and is cutting costs by another £35 million – from its media and entertainment arm – to offset the tougher trading.

The cost reductions would see it save £20 million through delaying some programming into the new year and another £15 million from trimming marketing spend.

Neil Wilson, UK investor strategist at Saxo Markets, said: “Faced with the onslaught of US streaming giants, a consolidation has been a long time coming.

“Chatter about bids for all or parts of the business have done the rounds forever.

“Sky was bought by Comcast in 2018 – we might see a similarly protracted takeover and the regulator might raise eyebrows at Sky building such a dominance in the UK TV ad market.”

Dan Coatsworth, head of markets at AJ Bell, said it was a “surprise” for a suitor to come forward for ITV’s broadcasting business, rather than the production arm, which he said has long-been the “jewel in ITV’s crown”.

“There was a lot of uncertainty over whether anyone would want to relieve ITV of this ball and chain, so to see interest from Sky is Christmas come early for management and shareholders,” he said.

But he said a standalone ITV Studios business would likely become an “instant takeover target itself”, suggesting the likes of Netflix could be interested.