Investors showed signs yesterday of giving up hope of GWR increasing its pounds 21m takeover terms for Chiltern Radio. Shares in Chiltern, which has nine stations, slipped 10p to 305p to stand at a 5 per cent discount to GWR's all-paper offer, which values the target's shares at 321p.
Shares in GWR, which is offering equity terms of 2.38 for every one share in Chiltern, held at 135p yesterday on news of strong growth in advertising revenues, which resulted in more than doubled pre-tax profits of pounds 2.06m for the six months to March. The result matched analysts' predictions, and compared with a pounds 930,000 profit in the first half of 1993/94.
Holders of GWR shares will receive a 37 per cent increase in the interim dividend from 0.69p to 0.94p. Earnings per share improved 48 per cent to 2.6p.
Talks have been held between GWR and Chiltern since the bid was launched on 26 May, just three days after Stephen Dorrell, the National Heritage secretary, increased the maximum number of licences that could be held by one company from 20 to 35.
GWR, which held the maximum 20 licences before the rule change, views Chiltern as an important piece in its geographical broadcast jigsaw. Ralph Bernard, chief executive of GWR, yesterday declined to comment on the talks with Chiltern. Industry observers say that Chiltern, which has so far seen a 52 per cent majority of shareholders pledge or indicate acceptance of the bid, wants GWR to sweeten the offer with a cash alternative.
There is also an outside chance of a "white knight" bid. Chiltern is known to have tried to court other suitors.
Chiltern's directors last year recommended shareholders accept a pounds 17m bid from CLT, the Luxembourg-based radio company. However, the deal was turned down by leading shareholders, including Capital Radio, which has an 18 per cent stake.
A successful takeover would bridge GWR's broadcasting coverage between the Midlands and East Anglia. The combined catchment area contains an adult population of more than 10 million.
This would help GWR attract national advertising accounts, which generally have longer and more intense campaigns. The audience figures would also prove attractive to local companies, which at the moment are the prime driving force behind the rise in advertising on radio stations across most of the UK.
The trump card in the bid is held by Daily Mail and General Trust, the owner of the Daily Mail and Mail on Sunday newspapers, which has a 30 per cent stake in Chiltern. The shareholder has indicated that it will accept GWR's bid, but has not made an irrevocable pledge, which leaves the door ajar to backing a higher offer from another party.
No firm decisions on the bid have been made, either, by other shareholders representing 47 per cent of Chiltern's equity.
There is speculation of some unrest among their ranks because they would prefer a cash element in the bid, rather than exchange one lot of paper for another in GWR.