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According to The Business, any potential privatisation of Channel 4 could be opened to a range of bidders, including the possibility of overseas companies.

A government source told The Business: "It's difficult to conceive of a way in which you could privatise a public corporation without some sort of tender process."

The case for a merger with Five has won support however. Former Downing Street and now Ofcom adviser, Ed Richards, told the paper that Channel 4 would be foolish not to look at the possibility of consolidation to protect its role in the multichannel future.

Broadcasting minister Lord McIntosh told the paper that he would be "surprised" if the Treasury would change Channel 4's status as a public corporation.

Neither Ofcom nor the Department of Culture, Media and Sport have yet commented on the possibility of a Channel 4 merger.

It is understood that John Newbigin, Channel 4's head of corporate communications, is talking to political lobbying firms in an effort to persuade the government to change its structure. This may potentially pave the way for a link up with Five.

Earlier last week media executives raised fears that the channel's advertising budget could be squeezed following the merger of Granada and Carlton to form ITV. Although a merger between Channel 4 and Five would help the companies compete, a change of ownership would require an act of Parliament.

The lesser option is a merger of the two stations' sales operations. It was talks on this issue that led to wider merger talks. Channel 4 has yet to decide that a sales link-up with Five, which is jointly owned by RTL and United Business Media, is the best option. Other options could include privatisation to allow access to private sector funds or a link-up with a partner other than Five.

Channel 4's share of audience slipped below the 10% for the first time last year. However, Five's share of audience is considered to have reached its peak at around 8%.

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