Capital offers pounds 33m for Southern: Competition forces the consolidation of local radio stations

CAPITAL RADIO has taken independent local radio another step along the road to consolidation with a recommended 115p a share, or pounds 33m, cash offer for Southern Radio, writes Diane Coyle.

Patrick Taylor, Capital's finance director, said: 'It has been a fragmented industry. This must change if radio is to become more competitive with other media in the UK.' Radio advertising revenues have shown strong growth during the past nine months, but their share, at 3.4 per cent of total display advertising revenues, lags well behind the rest of Europe and the US.

A second reason for the takeover was increasing competition in Capital's home market. Mr Taylor said: 'We felt we should put some eggs in baskets outside London.'

Although its AM and FM stations have the biggest shares of the local market, and it is thought almost certain that Capital will retain its licences (which fall due for renewal this year), it added two of Birmingham's leading commercial stations to its portfolio last year. Capital also holds stakes in other independent local radio operators, including GWR and Metro Radio.

Southern Radio operates in Kent, Sussex, Hampshire and the Isle of Wight. In the year to 30 September it made pre-tax profits of pounds 956,000 on turnover of pounds 8.6m, and had net assets of pounds 3.1m at the year-end. Its advertising revenues so far this year are ahead of the same period last year.

Capital said that by offering London and the South-east, two of the biggest advertising markets, together, commercial radio would become a more effective competitor to other media, especially television.

Capital had received irrevocable undertakings to accept the offer from owners of 55.9 per cent of Southern's shares. The deal is being financed from Capital's pounds 18m net cash and existing banking facilities. A limited share alternative could increase its equity by up to 2.8 per cent of the enlarged issue.

Southern Radio shares rose 25p to 118p, while shares in Capital Radio closed 21p higher at 418p.