Clear Channel hovers as radio groups talk

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The Independent Online

Clear Channel, the US radio giant headed outside the US by Roger Parry, is closely monitoring the £700m merger talks between Capital Radio and GWR.

Clear Channel, the US radio giant headed outside the US by Roger Parry, is closely monitoring the £700m merger talks between Capital Radio and GWR.

Industry sources said Clear Channel could launch a bid for the enlarged group if the deal passes regulatory hurdles.

Meanwhile, confirmation of the merger talks sent radio stocks higher as further consolidation in the sector was forecast. Shares in GWR and Capital rose 9 per cent and 6.5 per cent respectively, while shares in Chrysalis moved up 2.4 per cent.

Emap, one of the biggest UK media groups with radio interests, is already eyeing the purchase of the £320m Scottish Radio Holdings, where it holds a 27 per cent stake. According to analysts, that deal would create a truly nationwide radio group with interests covering the entire country, offering advertisers a one-stop shop for commercial radio campaigns.

Gary Hughes, the finance director at Emap, refused to comment on whether a move for SRH would come soon, limiting his comments to the Capital-GWR deal. "From our perspective, neither of these two companies [Capital or GWR] are at the top of our wish list."

A spokesman for Clear Channel said: "We believe UK radio absolutely needs consolidation. There are too many companies for the size of the market. It would be good for the medium and good for the advertisers. For us, we are going to watch the mating dance with fascination."

Objections to the deal were muted yesterday. Rival radio groups plotting their own deals in the sector are thought unlikely to object to a transaction that brings together two companies which are a neat geographic fit with very little overlap. Their combination will not change the competitive line-up of stations in most regions.

Advertisers, who are most likely to lose out as pricing power becomes more concentrated in the hands of fewer radio companies, said they were "studying with interest" the news of the proposed tie-up.

A statement from ISBA, the industry trade body, said: "As the industry is aware, advertisers tend to be concerned over any moves which might reduce levels of competition in the media markets for their budgets. ISBA notes that, combined, GWR and Capital would control some 40 per cent of the national radio advertising market. This is a significant market share in radio - a very important strategic medium for advertisers."

Capital and GWR issued a short statement yesterday in response to several days of press reports on the planned deal. The proposal is for a nil-premium merger. "These discussions are ongoing and may or may not lead to a transaction. A further announcement will be made as appropriate in due course," the statement said.

Analysts welcomed the news of the talks, although they said GWR's biggest shareholder, Daily Mail and General Trust (DMGT) with 29.9 per cent, could still scupper the deal. Richard Menzies-Gow at Dresdner Kleinwort Wasserstein said: "It is unclear just how far talks have progressed and there are big hurdles to clear. First and foremost is convincing DMGT. Is it prepared to be a 15 per cent shareholder in a bigger group or does it have other ambitions?"

Indications yesterday were that DMGT would probably accept the deal if a formal proposal was made.

Mr Menzies-Gow said: "Combining GWR and Capital creates a clear number one radio group, accounting for about 40 per cent of listening and a similar percentage of industry revenues.This has implications for pricing power with advertisers. However, even ignoring this, the deal can be justified on cost savings alone. We estimate £7 to £9m annual costs could be extracted, about 5 per cent of the combined cost base. This would boost combined profits by about 17 per cent and enhance earnings by about 20 per cent."

Radio regulation

The tests that GWR and Capital must pass

Assuming that Capital and GWR can agree terms, the two radio groups will then have to run the gauntlet of the Office of Fair Trading, the Competition Commission, Ofcom and possibly the Department of Trade and Industry.

The Communications Act requires that in any particular region there has to be at least two commercial radio operators plus the BBC. Before the Act was passed, the proposal was for three plus the BBC, but the industry succeeded in persuading the Government to lower the hurdle, thus making commercial radio mergers easier. The deal passes this test comfortably with the exception of the East Midlands, where the group may have to sell assets to a rival.

The DTI has the power to require Ofcom to carry out a public interest test, although this is not a requirement. Ofcom could also find itself testing the deal to make sure it does not undermine the quality and range of programming, the character of services or the "localness" of services.

From an economic point of view, the OFT will look into the group's combined 40 per cent share of audiences and advertising revenues, with a referral to the Competition Commission a given.