ITV rumoured as takeover target after pensions deal

ITV has moved to shore up its underfunded pension scheme by paying Credit Suisse to take on the £1.7bn risk of members living longer - a deal which could make the broadcaster a more attractive target for a takeover.

ITV, which is looking forward to a bumper autumn with new series of The X Factor and Downton Abbey following a summer slowdown, has entered into what is called a "longevity swap" with financial giant Credit Suisse, as part of its long-term strategy to reduce the risk in its 12,000-member-strong pension scheme.

The deal sees the broadcaster pay a fixed monthly sum to Credit Suisse, which will increase its pension deficit, but secure the bank's guarantees should any members live longer than expected.

Ian Griffiths, ITV's group finance director, said that the swap would remove "significant risk" from the broadcaster's balance sheet.

The arrangement follows a complex deal last year that reduced the deficit in ITV's final salary scheme by £124m. The broadcaster also scrapped the proposed sale of digital terrestrial multiplex operator SDN in 2009 and instead used the firm as asset backing for its pension scheme.

The longevity swap, brokered by Towers Watson, is the third biggest deal of its kind, following similar arrangements at BMW and Babcock International. In effect, the deal adds £50m to ITV pension scheme's funding shortfall of £312m, which ITV intends to make up with revenues from SDN.

Raj Mody, a pensions partner at PricewaterhouseCoopers, which advised ITV on the deal, said that the swap was similar to switching from a variable-rate mortgage to a fixed-rate scheme.

"There's not any actual upfront cost to do that but you might pay a bit more every month on a fixed rate than you do on a variable rate. However, like the fixed rate, what this does do is to provide certainty on the costs," he told The Independent.

The deal is expected to free up ITV to purchase another company, such as a production outfit to boost ITV Studios, or become a more attractive target for takeover itself.

Lorna Tilbian, an analyst at Numis Securities, told The Daily Telegraph that the deal removed a "poison pill" for ITV's potential suitors.

"It reduces its risk and gives it more flexibility, which is the most you can ask from a pensions deal," she said.

"It makes ITV more attractive to being taken over and also means that if it made disposals, the cash could go into its coffers to be reinvested in the company, rather than being taken away for pensions."

ITV has previously attracted takeover interest from Europe's largest broadcaster RTL Group, the former owner of Channel 5, and Italy's MediaSet, but private equity groups could also be interested now that the pensions issue has been addressed.

Last year, ITV tripled its pre-tax profits to £321 million on the back of a resurgent TV ad market, and the broadcaster is said to have around £700m in the bank for potential acquisitions.