ITV Bid Rejected by Peppa Pig-Owner Entertainment One — 2nd Update

By Ben Dummett and Jacquie McNish 
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LONDON–Canadian film and television producer and distributor Entertainment One Ltd., the owner of children’s cartoon series Peppa Pig, Wednesday said it rejected a $1.3 billion offer from U.K. broadcaster ITV PLC.

The company said it received an offer of 236 pence a share, which would value it at around GBP1 billion ($1.3 billion), but “rejected it on the basis that it fundamentally undervalues the company and its prospects.” It later clarified that the offer was from ITV.

In a statement, ITV–Britain’s largest commercial terrestrial broadcaster by sales–said the offer represented a “significant premium” to Entertainment One’s share price prior to recent bid speculation, and 19% higher than the Canadian firm’s share price of 197.9 pence on Aug. 8.

Shares in Entertainment One, which is listed in London, were up 5.6% on Wednesday morning, valuing it at GBP983.3 million. ITV shares ticked up less than 1%, as investors gauged whether the group would return with another offer.

A deal between the companies would have helped ITV diversify its business away from advertising revenue amid concerns of a slowdown in the U.K. as media operators are forced to cut spending to offset the economic fallout of the Brexit vote.

Although ITV indicated last month that it hadn’t suffered a drop-off in advertising following the Brexit vote, it still aims to cut costs by GBP25 million across its operations, including possible job losses, in 2017, with ITV Chief Executive Adam Crozier citing “wider economic uncertainty.”

ITV generated net advertising revenue of GBP838 million for the first six months of the year, flat compared with the year-earlier period as advertisers–around February, when the U.K. vote date was announced–started to pull back from business amid concerns over a slowdown in consumer spending. ITV’s overall net profit fell to GBP243 million from GBP257 million.

Still, ITV’s production arm showed strong growth, as year-over-year revenue increased 31%. That gain highlights the broadcaster’s interest in Entertainment One as part of its stated goal of building a “global production business of scale.”

In recent years, ITV has gone on a run of snapping up production companies across the world, including in the U.S., to boost its expanding production arm ITV Studios–its stellar-performing business that is driving the company’s top line.

On Wednesday, ITV said acquiring Entertainment One has “strong strategic rationale” and would help with “rebalancing” its business.

It is also eager to gain an edge in the U.K.’s competitive broadcasting market, which has been shaken up in recent years by telecommunications firms like BT Group PLC entering pay-television, as well as over-the-top streaming platforms like Netflix Inc.

By acquiring Entertainment One, ITV would have gained access to an owner and distributor of 40,000 television and film titles, including Grey’s Anatomy, through its stake in Mark Gordon Co., and the film release this year of “The BFG” in partnership with Amblin Partners. Entertainment One’s content library also includes 4,500 hours of television programming and 45,000 music tracks, according to the company’s website.

Analysts at Liberum said Entertainment One’s rejection of the offer isn’t surprising given that its largest shareholder, the Canada Pension Plan Investment Board, bought most of its 19.7% stake at 269 pence a share. But ITV may balk at making an offer in excess of 300 pence a share as such a move could hinder its ability to pay a special dividend, they added.

Simon Zekaria and Rory Gallivan in London contributed to this article.

Write to Ben Dummett at ben.dummett[a] and Jacquie McNish at Jacquie.McNish[a]

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