Capital and GWR confirm merger talks to create £700m radio giant

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The Independent Online

Capital Radio and GWR admitted yesterday that they are in talks over a £700m merger of equals, a deal that will kick-start the long-awaited consolidation of the UK commercial radio industry.

Capital Radio and GWR admitted yesterday that they are in talks over a £700m merger of equals, a deal that will kick-start the long-awaited consolidation of the UK commercial radio industry.

The pair responded to days of speculation that they are close to forming a radio giant with an estimated 40 per cent share of the advertising market and a portfolio of stations including Classic FM and the biggest London station, Capital 95.8FM.

The companies said: "The boards of Capital and GWR note recent press speculation and confirm they are currently in discussions concerning the possibility of a nil-premium all-share merger. These discussions are ongoing and may or may not lead to a transaction." Despite the cautious tone of the statement, discussions are understood to be close to fruition, with management positions already decided and plans to achieve annual cost savings of at least £8m.

GWR owns the national Classic FM station, as well as dozens of local stations. Capital has the leading position in London and a regional network. There is very little overlap between the two companies' local licences and as a result, the groups are confident of pushing through the deal without arousing serious competition concerns.

Consolidation in the industry has been possible since the liberalisation of media ownership laws at the start of 2004. The Capital-GWR merger is seen as the easiest deal to do, because the two are the only pure play radio companies. Emap, the owner of Kiss 100 FM, Chrysalis, the owner of the Heart stations, and SMG, the owner of Virgin, all have other substantial media interests.

Capital and GWR have talked in the past, but it is believed that personal issues and valuation questions have scuppered a deal.

The Independent reported on Saturday that the top management jobs at the combined Capital-GWR had been decided. Ralph Bernard, the executive chairman of GWR, is expected to take the same position after the merger, with the Capital boss, David Mansfield, becoming chief executive.

Shareholders will be nervous over whether these two industry veterans will be able to work together without friction, but the pair have agreed defined areas of influence. Mr Bernard is seen as an ambassador for digital radio and defining strategy in this area is likely to be central to his responsibilities, while Mr Mansfield has a more commercial background and is seen as strongest in driving advertising revenues.

Capital shares rose 7 per cent last week as speculation mounted that it was making encouraging progress in talks with GWR. Capital is marginally the senior partner, its market value being £367m compared with GWR's £343m after its shares rose 4 per cent last week.

The pair have moved closer together as the advertising recovery fed through to improved performance at GWR, while Capital shares have fallen on concerns that listeners will desert its flagship station after the departure of Chris Tarrant from the breakfast show. Johnny Vaughan, his replacement, has got off to a shaky start.

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