SMG, owner of Pearl & Dean and ITV franchise holder STV, will this weekend find itself in the sights of private equity bidders after a dire profits warning yesterday sent its shares down more than 20%, knocking a £45m hole in the company's valuation.

Dramatically declining revenues in its television business, which owns the former Scottish TV and Grampian franchises, and Pearl & Dean cinema advertising operation mean the group's annual profits will be well under what the City had been expecting. As a result the company has been forced to start talks with its banks as it is in danger of breaching covenants on its overdraft.

SMG has debts of £152m and is looking to sell both its Primesight outdoor advertising unit and Pearl & Dean. While the auction of Primesight, which is performing well, is proceeding to plan there are fears that the poor performance of Pearl & Dean could mean SMG will get a lower price for the business.

Yesterday's share price slump will be particularly poorly received by Chris Evans, the TV presenter who sold his Ginger Productions and Virgin Radio businesses to SMG three years ago, as he owns roughly 10m shares in the business.

A number of private equity companies are understood to be interested in SMG, which was in abortive merger talks with rival UTV over the summer, now the business finds itself in the bargain bin.

UTV called off talks about a nil-premium merger late last month because SMG's management wanted too large a slice of the merged business. Shareholders in both media groups, however, are believed to have been keen on the idea of the two getting together.