ITV Share Price Drops After Sky Deal Due to High Separation Costs, Delays
ITV's Sky Deal: Financial Impact, Market Reaction, and Regulatory Hurdles
By Paul Sandle, Iain Withers and Anousha Sakoui
Deal Announcement and Immediate Market Response
LONDON, July 9 (Reuters) - ITV's long-awaited deal to sell its broadcasting business to pay-TV company Sky for up to £1.6 billion has dented its shares as analysts focus on separation costs, ongoing expenses and regulatory delays.
After initially rising 1.2% on news of the transaction on Monday, ITV shares reversed course and were down around 10% by Thursday, with JPMorgan cutting its rating and price target following the deal earlier this week.
Analyst Downgrades and Concerns
"ITV has not been able to secure the deal that we had hoped for," said Daniel Kerven, an analyst at JPMorgan, who downgraded his view "reflecting the lower disposal price, separation costs and stranded Studios costs".
Deal Structure and Financial Details
After at least eight months of talks with Comcast's Sky, ITV said it would receive £1.2 billion in cash, £200 million from the contribution of Love Productions and £200 million contingent on ITV's 2027 ad revenue.
Separation and Stranded Costs
But analysts pointed to about £150 million of separation costs and roughly £200 million of stranded costs that cannot be immediately removed.
Investor Sentiment and Strategic Rationale
The share price reaction contrasts with generally positive investor views on ITV's decision to exit a structurally declining broadcast business.
Shareholder Perspectives
A top-30 shareholder said investors were focusing on the high separation costs and the fact that it will take more than a year to close the deal, but was ultimately happy ITV had agreed to sell off a unit that the investor viewed as a "melting ice cube."
Regulatory Review and Timeline
The deal also faces a long investigation by competition authorities. ITV said it expects completion within a year to 18 months.
Changes to UK Listing Rules
Changes to UK listing rules in 2024 mean the transaction, equal to about 58% of ITV's market capitalisation, will not require a shareholder vote.
Implications for Future Transactions
The rules, designed to help London keep up with New York and the EU, removed a requirement for companies to seek a shareholder vote on significant transactions, with the exception of reverse takeovers and a listing.
ITV's is one of the largest deals so far to take advantage of the rules after Vodafone Group sold its Italian assets to Swisscom without a vote in 2024.
(Reporting by Paul Sandle, Iain Withers and Anousha Sakoui;Editing by Elaine Hardcastle)
