Capital rethinks its future after Chris Evans grabs Virgin

Capital Radio was yesterday remoulding its future strategy after losing Virgin Radio to Chris Evans, the DJ. Virgin accepted an pounds 85m bid from Mr Evans, despite earlier agreeing an pounds 87m offer from Capital.

As the news sank in, the City marked Capital's shares down by as much as 27.5p to 472.5p, before regaining confidence in the stock, which closed up 2.5p to 502.5p.

Capital cannot take legal action against Virgin as its contract with the group ceased to be legally binding when the deal was referred to the Monopolies and Mergers Commission.

A spokesman for the Department of Trade and Industry said last night that the report into the merger would still be published, despite the rejection of Capital's bid.

Observers expect an exceptional charge of around pounds 1m in the 1998 profit and loss account after taking account of legal and administrative fees for the abortive deal. Capital indicated the figure would be well below pounds 1m.

David Mansfield, chief executive of Capital, said he was "surprised and disappointed" by Virgin's decision. However, he said he awaited the outcome of the MMC report with interest.

Mr Mansfield said Capital had told the MMC that the group's share of radio advertising should be judged in the context of the total value of London's advertising market. London's advertising market across all media is worth pounds 1.6bn, while radio's share of that figure comes to just pounds 75m.

"An important part of our case to the MMC was that radio competes and is very much part of the wider advertising market," Mr Mansfield added. "We will be very interested to see if the MMC have recognised this."

Analysts said that if the MMC accepted Capital's points about advertising, the group could bid for Melody Radio, a London station. Whatever the outcome of the report, Capital is now likely to bid for the North-east radio licence. The company has already put in a bid for the North-west franchise.

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