Hewitt may give ITV go-ahead this week

The UK's two biggest commercial television companies are this week hoping to get the Government's green light for a £4bn merger that will create a major third force in British broadcasting. But competition lawyers are stressing they may not get what they are bargaining for.

Granada and Carlton believe that Patricia Hewitt, the Secretary of State for Trade and Industry, will back a merger on terms that would allow the two ITV companies to retain their advertising sales houses.

Instead of insisting on a sell-off, which would undermine the bulk of the deal's economic rationale, the companies hope that Ms Hewitt will back new proposals governing how television advertising is bought and sold. These would include letting advertisers extend their current contracts for at least three years on existing terms to avoid price inflation.

The Competition Commission, which passed its report to the Government in August, is thought to have mulled a "double divestment" of the sales houses but decided the move did not make financial sense. Carlton and Granada see potential for cost savings of at least £55m if they merge and sell their own airtime. However, this would fall to £15m if the new group cannot control its main source of revenues. Charles Allen, Granada's chairman, has said that a forced "double divestment" would question the merger's viability.

But given an enlarged ITV would control more than half of all UK television advertising, the Commission's report will seek to limit its influence. It is likely to propose setting aside a proportion of airtime that could be auctioned off and traded independently of ITV on a secondary market.

As speculation mounted over the report's detail, Granada dismissed reports that the Government would push for an extensive shake-up of the new company's top management. "Mr Allen has a very strong relationship with the Government. It beggars belief that the Government could be thinking such a thing without us being aware of it"

Mr Allen will be chief executive in a new ITV, while Carlton's Michael Green will become chairman.