Outlook: ITV plays its ace in battle over football TV rights

Marconi travails; Pricey Innogy

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Marconi falls to penny stock status after failure to agree refinancing

RWE's £5.2bn Innogy takeover could be first shot in UK acquisitions campaign

It's hard to know who to blame most for the debacle over Football League TV rights. A contract is meant to be a contract, and ITV Digital's threat to close if the price isn't renegotiated sharply downwards is a disgracefully cynical piece of commercial blackmail.

On the other hand, you have to wonder what on earth the Football League was doing signing the sort of contract it did with ITV Digital in the first place. The ITV Digital bid was only a bit better than the BSkyB offer, and yet apparently all the Football League got out of ITV Digital in the way of comfort that the deal would be honoured was a far from satisfactory "short form contract". Given that ITV Digital is a start-up, this outline agreement was a particularly foolish thing to rely on.

Again, the Football League was under the impression that ITV Digital's joint owners, Carlton and Granada, stood behind the contract even though this was not made clear in the piece of paper ITV Digital put its name to. There was nothing in writing. The Football League looks guilty of naivity bordering on the negligent. Who was advising these people?

As it is, the result could scarcely be more disastrous for either party. ITV desperately needs to improve its finances if it is to survive, and yet there is no prospect of that happening while still saddled with the consequences of its profligate contract with the Football League. Acquisition of these rights has had nil impact on the company's subscriber numbers, and can therefore reasonably said to have been a total waste of money.

The consequences for the Football League if ITV Digital is allowed to renege on the contract are equally disturbing. Many clubs have predicated their expansion plans and player acquisition programmes on the amounts of money they expected to receive from ITV Digital. The Football League is not exaggerating when it says some smaller clubs face bankruptcy.

The Football League thinks ITV Digital is bluffing, but it would be unwise to bank on it. Nothing would please the City more than to see Carlton and Granada lance this disaster of a company and close it down.

Sky's position is an ambivalent one, because though it might say otherwise, it has some interest in seeing ITV Digital stagger on, not as a competitor, but as a kind of "Sky Lite" distributor of its own channels. What is absolutely certain is that Sky won't come riding to the Football League's rescue by making a better offer than ITV Digital. If the Football League wrongly calls ITV's bluff and the Digital service closes, then Sky as the only likely alternative purchaser of the rights could pick them up for next to nothing.

It's unfair, but the Football League only has itself to blame, and it has little choice in the matter other than to accept ITV's reduced £50m offer.

Marconi travails

"I think there are many fewer questions now about whether we're going to survive, I'm certain we are going to make it", Mike Parton, the new head on the block round at Marconi rashly said last January. Yesterday the questions began to multiply again after Mr Parton admitted that market conditions have continued to deteriorate and that poor trading was likely to persist rather longer than previously anticipated.

For good measure the group seems to have been forced to give up one of its last remaining plus points, covenant free and relatively generous syndicated loan facilities, in favour of a straight "on demand" overdraft, which seems almost wholly to put the company's future at the mercy of its bankers. One of the few decent things Marconi's former finance director john Mayo did before being thrown overboard was to put these facilities in place. They've now gone.

Marconi was putting the best possible gloss on events yesterday. Bankers could have demanded much more, Marconi insists. Instead the company has been able to resist paying the bankers off with the proceeds of recent asset disposals. The new "on demand" facility gives bankers a nuclear option with which to threaten bondholders in forthcoming negotiations over swapping debt for equity, but that's about it.

Even so, Marconi's underlying problem is no nearer a solution. Operationally, there's still a decent business in there somewhere, but it is not big enough to support net debt of £3bn.

With the shares yesterday reduced to penny stock status, it's hard to know whether to laugh or cry. The former GEC was ejected from the FTSE 100 some months ago. Without recovery in the share price this one time pillar of the industrial establishment faces ejection from the FTSE 350 too at the next review. How are the mighty fallen.

Pricey Innogy

The Germans think they can make water and electricity mix without being electrocuted. This is more than ScottishPower and Sir Desmond's Pitcher's United Utilities managed. Both thought they could sell water to their electricity customers and vice-versa, and both ended up getting their fingers badly burnt.

RWE, the owner of Thames Water and now Innogy, remains undeterred. It dreams of turning every home in the capital into a consumer of Thames water and npower electricity with a telephone account thrown in. RWE's task would have been made easier had it bought London Electricity, but the French got there first.

So RWE has decided instead to buy Innogy, which supplies one in four British homes with electricity and another 2 million with gas. The price is not quite as extravagant as that paid for Thames but it is still pretty heroic. The deal pitches RWE head-to-head with Electricité de France, the owner of London and Sweb. Both companies have big plans for the UK and since they both also have deep pockets, Seeboard could reach a truly silly price when it is auctioned off by its American owners shortly.

Dietmar Kuhnt, the chief executive of RWE, and Brian Count, his opposite number at Innogy, were playing their cards close to their chest yesterday. But if Mr Count's maths are right and the UK energy market is destined to come down to between four and six big players, then we still have two too many. Powergen, which is about to fall into the arms of another German suitor E.On, looks like a survivor along with TXU and Centrica, which owns the British Gas brand.

That just leaves Scottish & Southern, which is about to lose its motivating force Jim Forbes, and ScottishPower, where Ian Russell is under the cosh after slashing the dividend. If they don't want to get picked off one by one, maybe the two Scots should think about huddling together for warmth.

j.warner@independent.co.uk