Daily Mail group mulls £700m bid for merged Capital Radio-GWR

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The Independent Online

Daily Mail & General Trust will consider making a bid for the soon-to-be-merged Capital Radio-GWR group, according to one of its most senior executives.

Daily Mail & General Trust will consider making a bid for the soon-to-be-merged Capital Radio-GWR group, according to one of its most senior executives.

The newspaper publisher, which has a 29.9 per cent stake in GWR, will emerge with about 15 per cent of the combined GWR-Capital that will be created next month through a nil-premium merger and called GCap Media. The merged business will be the leading force in the UK radio.

DMGT, the publisher of the Daily Mail, Mail on Sunday and the Evening Standard in London, believes it must eventually either take majority ownership of the new radio business or sell out altogether.

Peter Williams, the finance director of DMGT, said: "15 per cent [shareholding in GCap] is not a long-term sustainable position ... We are the only group to have invested from the start of commercial radio in this country. We've always thought radio is an interesting form."

At Friday's closing stock market prices, Capital was worth £330m, while GWR had a value of £300m, suggesting that a successful bid for the merged company would have to be pitched around £700m - a level that analysts believe DMGT may be able to manage without having to issue new equity.

The merged radio group will have the leading station in the lucrative London market, Capital 95.8 FM, as well as a national station in GWR's Classic FM. DMGT has a successful radio business in Australia and it tried in the past to develop its own radio venture in this country. But it decided it was not possible to create a radio group from scratch and sold its radio interests to GWR, which is how it ended up with the 29.9 per cent shareholding in it.

Mr Williams said: "Ultimately, we can't sit at 14 or 15 per cent [of GCap]. But we are not under any pressure to do anything. We are highly supportive of the merger and of the management."

He noted that DMGT sometimes took many years to make up its mind about investments - a function of its "generational" approach to business. Mr Williams thought there would be no change in the DMGT radio shareholding in GCap "for the foreseeable future".

Analysts said the new radio group would make a perfect fit for DMGT, giving it access to the growing medium of radio and exploiting its proven expertise in consumer media.

Lorna Tilbian, an analyst at Numis Securities, said: "I'd be very surprised if DMGT don't end up owning it [GCap] one day. They will just wait till the next downturn and then top up their shareholding before launching an all-out bid."

She said the Evening Standard and Capital 95.8 were a "natural" fit. It is unclear how the competition regulators would react to a proposed cross-media entity such as the newspaper group DMGT combined with the radio operator GCap.

The rules governing cross-media have never been tested under the current regulatory regime. The crossover between GCap and DMGT in London in particular may present problems. Elsewhere in the country, there would be difficulties too. For instance, the combined businesses would own both the Nottingham Evening Post and Trent FM.

The guidance on this issue is that a newspaper can be owned with a radio station in one region, as long as there are at least two other commercial radio owners serving that area. Dealings in the new GCap shares begin on 9 May.

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