Granada has announced plans to merge with contract caterer Compass Group and split off its media interests into a separate company.

Granada is currently worth about £12bn, while Compass has a market value of about £6bn. If the merger takes place, Granada says it will split itself up into two groups within a year; a hospitality group, which would include Compass, and an independent media group.

Granada chairman Gerry Robinson would stay on until the demerger, and then become a consultant to the catering group. On demerger, the hospitality company will be chaired by Compass boss Francis Mackay and the media company by Charles Allen, the current Granada chief executive.

The hospitality business created by the deal would include Compass' contract catering operation, which supplies food to a range of large companies, and Granada's hotels and restaurants empire, including the Forte chain and its restaurant operation including Little Chef, Happy Eater and Granada motorway services.

The media company would include Granada TV, London Weekend TV, Yorkshire and Tyne Tees TV, amongst its vast range of interests. Granada's rivals, United News & Media and Carlton Communications are currently seeking regulatory clearance for a merger.