Rumours mount over Capital Radio merger with rival GWR

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The Independent Online

Speculation is growing that Capital Radio and GWR, the owner of the Classic FM station, are in advanced merger talks, pushing up shares in both radio companies yesterday.

Some City and industry sources say the companies are working towards an agreed deal by the end of this year.

One insider suggested that draft announcements about the deal had been drawn up in recent weeks but last-minute hitches had prolonged the talks.

All the major radio groups have sounded each other out over possible mergers, as such deals are allowed for the first time by a change in the law at the start of this year.

Sources insisted that, although significant stumbling blocks remained, the GWR-Capital talks went much further than this. It is thought that a nil-premium all-shares merger would be the most likely structure for the deal. Both companies have roughly the same stock market value and a merger would create a combined business worth £700m with 40 per cent of the radio advertising market. GWR also has dozens of local stations in its regional network. Crucially, most believe that the deal would get past competition watchdogs.

Paul Richards, an analyst at Numis Securities, said: "The industrial logic is compelling. Capital-GWR is the dream deal for the UK radio sector." Mr Richards put cost savings possible through the deal at £8m.

Capital Radio shares jumped 5 per cent to 420p, as 1.15 million shares changed hands - three times the average volume. GWR gained 4.25p to 255p. Both Capital and GWR declined to comment. Although some are convinced that a deal is imminent, others in the City and industry are more sceptical.

One source said: "Conversations have certainly taken place but I don't believe they're at the stage where a definite 'go' button can be pressed."

Another senior industry source said Capital Radio was being pressured by shareholders to do a deal and although it had entered talks, management did not favour a deal. He added that it was also unclear whether Daily Mail & General Trust, a 29.9 per cent shareholder in GWR, supported a merger.

Peter Williams, the finance director of DMGT, who also sits on the GWR board, said: "We remain open-minded. We will listen to any good suggestions."

Many believe another key hurdle is dividing up the senior management positions between the leaders of the two companies. Both Capital's chief executive, David Mansfield, and Ralph Bernard, GWR's chairman, are thought to want to run any merged company.

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