A merger between Channel 4 and Five — bringing together the broadcasters of Countdown and Neighbours — is being proposed as an alternative to bailing out Channel 4 with the help of cash from the BBC.

The idea has proved sufficiently interesting to ministers that the Government has asked UBS, the investment bank, to examine the possibility, as part of a broader exercise to investigate all the options for Channel 4.

RTL, the German-owned broadcaster behind Five, is interested in reviving a merger plan between the two channels that was first proposed four years ago. It would generate savings that could be enough to help to safeguard Channel 4's future. RTL hopes that a 4-Five tie-up could interest ministers, if complex alternative rescue plans for Channel 4 fail to win political support — although to succeed it would have to change thinking in Whitehall.

A 4-Five tie-up could generate savings well in excess of £30 million a year, insiders believe, as both sides would cut overheads, merge sales departments and trim their respective portfolios of digital channels, some of which lose money.

Any deal would have to overcome resistance from Andy Duncan, the chief executive of Channel 4, who scrapped merger talks with Five after he took over in 2004. The plan then would have seen the larger Channel 4 take a majority position, with RTL as a significant minority investor.

At that time, Mr Duncan said, “protecting and strengthening Channel 4's public service role is not compatible with the full merger that was proposed”. His view has not changed and Ofcom, the broadcast regulator, is wary of privatising a channel because it would cease to invest in news, current affairs and other upmarket, low- rating programming.

RTL, which is 90 per cent owned by Bertelsmann, the family-controlled German media conglomerate, is willing to make commitments about Channel 4's future output, although it is not clear how far it is prepared to make guarantees. Five broadcasts children's programmes for under-fives in the mornings, but most of its other content is heavily commercial, ranging from CSI to The Trisha Goddard Show.

The RTL interest comes as Ofcom prepares to set out plans to improve the financial position of Channel 4 next month. The regulator believes that Channel 4 needs about £100 million a year in funding from about 2012 to avoid bankruptcy.

Ofcom, which is advising ministers, is examining whether the gap could be filled by merging Channel 4 with BBC Worldwide, the BBC's successful commercial arm, or by a deal that falls short of a full merger. Also under consideration is the possibility that cash from the £3.4 billion the BBC receives a year from licence fees could be handed to Channel 4.

Channel 4 earned £1.6 million last year on revenues of £944.9 million. The smaller Five earned €10 million (£8.95million) — RTL accounts in euros — on revenues of €499 million.

Combined, the two would have a share of advertising just behind ITV's 41 per cent, making regulatory approval for a tie-up likely. Channel 4 last year had 24.1 per cent of advertising revenue; Five reached 9.3 per cent.

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