Shares in ITV (LON:ITV) ticked higher after the company agreed to sell its Media and Entertainment business to Sky for up to £1.6 billion. The break-up will enable ITV to return around £950 million, or 25p per share, to shareholders in cash.
The sale will leave content production arm ITV Studios as a standalone, London-listed business. ITV Studios’ future prospects will be underpinned by a long-term partnership with ITV Media and Entertainment and pay-TV operator Sky.
Unlocking value
Owned by US media giant Comcast (NASDAQ:CMCSA), Sky will pay £1.2 billion in cash for ITV’s broadcasting arm. ITV and Sky said the deal will create a major competitor to the global streaming giants. The two companies have finally hammered out the terms of a sale expected to transform the UK television landscape.
Through the deal, ITV Studios will also receive Sky’s Love Productions business valued at £200 million, and up to £200 million in cash linked to 2027 advertising performance.
The transaction is expected to complete in the second half of 2027. ITV said it ‘unlocks’ the value of ITV Studios, which will be a distinctive ‘pure-play global content business’.
What did the CEO say?
ITV CEO Carolyn McCall is ‘confident that Sky will be a strong and responsible custodian of ITV M&E, building on its heritage while investing in its future and safeguarding the qualities that make ITV so valued by viewers, advertisers and the UK’s creative industries.’
McCall added: ‘Looking ahead, ITV Studios will be well positioned to deliver long-term value to its shareholders through a combination of above-market profitable organic revenue growth and attractive returns to shareholders.’
Dana Strong, CEO of Sky, said: ‘Bringing Sky and ITV Media & Entertainment together combines the very best of free-to-air television, pay TV and streaming, ensuring viewers across the UK continue to enjoy outstanding British programming in a rapidly changing world.’
Strong continued: ‘ITV will remain a public service broadcaster at the heart of British life, and we’re excited about the future we can build together.’
Shares in ITV are down 35% on a five-year view. They also trade around 70% below 2015’s peak levels of around 280p. We think ITV’s management deserves credit for trying to unlock value through this sale.
The transaction values ITV’s Media and Entertainment arm at an EV/EBITDA multiple of around 5.6 to 6.4 times 2025 earnings. That multiple does sound a little miserly. But it is broadly in line with recent precedent deals in the sector.
ITV plans to use the sale proceeds to reduce ITV Studios’ leverage to around 1.5 times net debt to EBITDA. It will also return a bumper £950 million in cash to shareholders through an as-yet-undecided mechanism.
Investors should note that ITV Studios plans to hold a Capital Markets Day before the deal closes. At this event, the company will set out the merits of its standalone strategy.
Read the press release here: https://www.itvplc.com/investors
