ITV Potential Takeover | Value Unlock
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Disclaimer & Disclosure: The author has a long position in ITV. This post is for informational purposes only and should not be construed as investment advice. Conduct your own due diligence and seek professional investment advice before making any investment decisions.
In January 2023, I published an analysis of ITV Plc, highlighting that the company was significantly undervalued on a sum-of-parts basis.
ITV Plc (London: ITV) is the UK’s largest commercial broadcaster and a historic free-to-air public television network. If you would like to learn more about the business and its history, please revisit my January 2023 article.
Following publication of that article, I met with ITV’s CEO, Dame Carolyn McCall. She acknowledged that the value of ITV Studios, the company’s production division, was not adequately reflected in the share price. She revealed that the business was exploring options to unlock this hidden value.
During our discussion, I raised a challenge in relation to capital allocation decisions. Specifically, I questioned why management, despite believing the stock to be materially undervalued, chose to distribute surplus capital as dividends rather than repurchasing discounted shares. I presented examples, including Lord Simon Wolfson at Next Plc and Henry Singleton at Teledyne, to illustrate how share buybacks could be highly accretive for both the business and its shareholders.
I was assured that the matter would be taken under consideration and discussed at the next board meeting, although I ended the meeting with little hope that change would occur.
British companies and their management tend to be terribly old-fashioned. They see dividend policies as the holy grail and are often very resistant to diverging from tradition.
To my surprise, ITV subsequently announced a share buyback program and has since been repurchasing shares regularly. However, the scale of these buybacks has been underwhelming. True to its British roots, the company continues to allocate the majority of its surplus capital—400% more—toward dividends. This approach undermines the potential impact of buybacks, which have barely offset dilution from stock-based compensation in recent years. Consequently, the stock price remains largely unchanged and the company still appears significantly undervalued.
This undervaluation may explain why ITV is now the subject of renewed takeover speculation. Several potential suitors are reportedly evaluating bids for parts or all of the business:
CVC Capital Partners: They are considering a bid, possibly for ITV Studios, which is the company's production arm.
RedBird Capital-owned All3Media: This company is also eyeing ITV Studios and has been involved in early discussions about a potential bid.
Mediawan, backed by private equity giant KKR: Mediawan is another potential bidder for ITV Studios.
Groupe TF1: A major French broadcaster, thought to be Groupe TF1, is interested in ITV's broadcasting division, including its streaming service ITVX.
While these discussions are in preliminary stages, and no formal offers requiring disclosure under UK stock market rules have been made, the speculation has boosted ITV’s share price by 10% today. Still, the shares remain below the levels seen when I initially highlighted the company’s undervaluation in January 2023.
Despite the ongoing rumors, there is no certainty that a formal takeover bid will materialize, but if it does, there is a great deal of value to be unlocked here.
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