Emap could spin off radio assets as sector consolidates

Emap, the media group, is believed to be considering spinning off its radio assets, which include Kiss FM, as a way of taking part in the sector consolidation kicked off by the new media ownership rules.

The move would see the creation of a pure radio entity, with its own stock market quotation, worth about £600m. As the majority of Emap's business is magazine publishing, which is a slower growth market than radio, the company's shares are much less highly rated than radio-only companies such as GWR or Capital Radio. Emap is one of the top three UK radio industry players.

Emap insists it will not sell its radio business in the merger frenzy that is already gripping the sector, after the liberalisation of media ownership laws spelt out in last month's draft Communications Bill. However, to lead consolidation, Emap will have to restructure. The company cannot manage a large cash acquisition but the rating assigned to its shares would make an all-paper radio deal difficult.

A separate listing for Emap's radio assets, headed by the business' chief executive Tim Schoonmaker, would attract a higher stock market rating, solving this problem and allowing the new entity to work out a nil-premium merger with another radio company. Emap declined to comment but City sources said a demerger of the radio business was one of the options that it was examining, though an announcement is not thought to be imminent.

Simon Mays-Smith, an analyst at JP Morgan, said: "The company agrees that if they issue equity at the current valuation, it is likely to be value destructive – similarly with raising debt."

Mr Mays-Smith said the other options for Emap include merging its radio business with another industry player to gain a significant stake in the enlarged radio group or simply swapping some assets with other operations.

Separately, a further consolidation move came last night from Guardian Media Group, which sweetened its offer for Jazz FM, in order to secure a recommendation from management and to bring on board minority shareholders – who were unhappy with the original offer. The bid was raised from 180p a share, or £41m, to 195p a share, or £44.5m.

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