Capital Radio bid for Midlands is agreed

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CAPITAL RADIO, the London- based broadcaster, announced yesterday that it is to take over Birmingham-based Midlands Radio.

The agreed cash offer pitched at 130p a share values Midlands at pounds 17.7m and represents 38 times last year's earnings.

Richard Eyre, Capital's managing director, said the bid was part of a strategy to target national advertisers. 'We have decided to concentrate our expansion on UK radio because that is where we see the most potential for growth.'

Classic FM, the recently launched national station, is thought to have been successful in attracting national advertising at the expense of local stations. Capital, with the advantage of its London base, is more dependent on national advertisers than many of its provincial rivals.

The bid from Capital had been widely expected since the announcement in December last year that Midlands had 'received an approach'. Midlands shares had risen from a low of 70p last October before being suspended yesterday morning at 112p. Capital ended 3p easier at 178p.

Mr Eyre said that Midlands' two largest shareholders, with 20 per cent of the company each, had accepted the offer. It had already received acceptances for a total of 51.7 per cent of the shares.

Guy Lamming, an analyst at the stockbroker James Capel, said: 'This is a good deal for Capital, picking up Midlands at the bottom of the advertising recession and at a good price.' Midlands shares had been 188p in 1990 before the advertising slump took hold.

The only danger of an objection to a tie-up between the two stations would come from the Radio Authority, which has the right to veto any merger on the grounds of a complicated system of ownership points. A spokesman at the authority said that it thought it unlikely that Capital had breached the rules.

Radio stations are assigned points by the authority on the basis of the size of audience they can potentially reach. Mr Eyre said the acquisition of Midlands took Capital to within a few points of its 70 point limit.

He admitted that Capital's hands were now tied as far as further expansion was concerned. But he thought that if Capital wanted to buy more stations it could reduce some of its existing stakes. Below 20 per cent, stakes carry no points.

Mr Eyre said advertising in the first quarter of the year had started well, but he cautioned that it was too early to talk about a real recovery. He was sure, however, that the consolidation of the industry, of which the purchase of Midlands was a part, would allow radio to take a bigger slice of the advertising cake.

At present British radio has about half the average European share of advertising.

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