March 31 (Bloomberg) -- Apax Partners Worldwide LLP and Blackstone Group LP abandoned their attempt to buy ITV Plc after Britain's second-largest broadcaster rejected a sweetened offer. ITV shares had their biggest drop in almost two years.

The private equity firms, together with Goldman Sachs Group Inc.'s buyout unit, ``decided not to proceed further,'' the group said in a statement today. London-based ITV rejected the bid of 130 pence in cash per share earlier today. The offer valued the company at 5.37 billion pounds ($9.34 billion), 11 percent more than the price the day before the first approach.

The bidders, led by former British Broadcasting Corp. chief Greg Dyke, approached ITV after ratings declined at ITV 1, the company's biggest channel and the first commercial rival to the state-funded BBC. Leveraged buyout firms are struggling to acquire U.K. publicly traded companies including ITV and retailer HMV Group Plc as investors hold out for higher offers.

Apax and Blackstone ``can't get a decent enough return at a price that would be acceptable to ITV's board,'' said Leigh Webb, an analyst at Panmure Gordon in London with a ``hold'' recommendation. ``It would have to have been substantially higher, at least 140 pence'' to be accepted, he said.

Shares Drop

ITV shares fell 5.75 pence, or 4.6 percent, to 119.25 pence, the biggest drop since May 10, 2004. The company rejected a 120 pence-per-share offer on March 22.

The revised bid also gave investors the option to receive 86 pence and a stake in the acquired company, the broadcaster said in a statement today.

The group offered to buy a 48 percent stake in ITV for about 1.3 billion pounds, borrow 3.5 billion pounds and pay it out to ITV's shareholders, ITV said. That would have increased ITV's debt to more than seven times earnings before earnings before interest, taxes, depreciation and amortization in 2005, a level the broadcaster said was ``unduly risky.''

The extra yield, or spread, investors demand to buy the ITV 5.375 percent bond due in 2015 instead of government debt narrowed 11 basis points to 143 basis points, according to RBC Capital Markets Ltd. A basis point is 0.01 percentage point.

The annual cost of insuring 10 million euros ($12 million) of ITV debt for five years using credit-default swaps fell 40,000 euros, or 40 basis points, to 90,000 euros, according to Deutsche Bank AG prices.

Digital Channels

ITV has diversified by adding entertainment channels and buying Web site operator Friends Reunited Ltd. Profit jumped 62 percent last year on higher ad sales at the digital channels.

The broadcaster said today it plans to ``pursue its strategy for the company's multi-platform multi-channel digital future, which is demonstrably working.'' It's also returning 300 million pounds to shareholders.

Apax's Dyke was director general of the BBC from 2000 to 2004, when it added new channels and online services, heightening competition with ITV and Channel Five, owned by Bertelsmann AG's RTL Group. The BBC doesn't air commercials, but is funded through a mandatory license fee paid by all British television households. The fees, which rise to 131.50 pounds a year starting tomorrow, generate about 3 billion pounds a year for the BBC.

After raising a record $134 billion globally last year, buyout firms are finding it harder to invest that cash as investors hold out for better offers and companies take out more debt to offer dividends or buy backs to win over investors.

The value of completed U.K. private equity deals slumped to 485 million pounds in the first quarter, a fifth of the 2.2 billion pounds of deals recorded in the same period last year, according to a survey by the Nottingham, England-based Centre for Management Buy-out Research.

Other Offers?

An offer for ITV from another group of private equity firms is unlikely, according to Panmure's Webb. Blackstone is close to raising $13.5 billion for the world's biggest buyout fund, while Apax hired Dyke as an adviser 18 months ago. Dyke, 58, began his television career at London Weekend Television, now part of ITV.

``If this group of private equity firms can't make it work, I see no reason why another would be able to,'' Webb said.

A U.S. broadcaster may now consider an offer, said Theresa Wise, a media analyst at Accenture in London.

``ITV is basically in play again,'' she said in an interview. ``The consortium obviously believed that the financial performance can be improved and it might certainly get some of the big trade investors like the big American media giants thinking again.''

To contact the reporter on this story: Edward Evans at eevans3@bloomberg.net

Last Updated: March 31, 2006 10:42 EST