ITV dips on reports of interest in MasterChef producer Endemol

ITV shares fell on Monday after weekend reports linking it with the potential acquisition of the production company responsible for MasterChef, Big Brother and Peaky Blinders.

The broadcaster is among a number of companies looking to buy Endemol Shine, the Sunday Times reported, with a £3bn price mentioned.

Several potential bidders for lossmaking Endemol have already walked away.

New chief executive Carolyn McCall, who was poached from easyJet in January, said in July that she would consider making “value-creating mergers and acquisitions” and would not pursue “scale for scale’s sake”.

Endemol was reported as being up for sale in July, with Reuters quoting a price tag of €2.5-€3bn, with Liberty Global, ITV, RTL’s FremantleMedia and Lions Gate all said to be interested.

Analysts at Mirabaud Securities said a 10x EBITDA valuation would see "more likely" a €2bn range for Endemol, adding that ITV's swathe of equity income fund investors would mean McCall would "need to find means to protect the income stream if they moved down an acquisition strategy".

Deutsche Bank said the valuation "looks challenging for an asset with a mixed recent operating performance" and that the deal would involve a "material increase in leverage and/or a capital raise".

"The rationale would be synergies, with increased throughput through ITV Studios and a complementary geographic sales profile. Owning key content rights is a hedge against inflation in programming costs in the future and would maximize the direct-to-consumer strategy that the new ITV CEO has prioritised. But any synergies would take time and combining large production units could have near-term dis-synergies on talent loss and UK independent production quotas."

With ITV's "strong financial position", with net debt less than EBITDA, Macquarie analysts said the company "could spend £1bn in acquisition remaining within the 2x level, but it wouldn’t be able to pay the full consideration without raising cash".

They they added that "aggressive" M&A deals of content providers are "rarely value accretive due to difficulties retaining talent beyond the earn-outs period".