Shareholders round on SMG for rejecting £100m Virgin bid

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The Independent Online

Some of SMG's leading shareholders have criticised the media group for instantly rebuffing a £100m bid from 3i, the private equity group, for its Virgin Radio business.

Some of SMG's leading shareholders have criticised the media group for instantly rebuffing a £100m bid from 3i, the private equity group, for its Virgin Radio business.

F&C Asset Management lashed out yesterday at SMG's performance record with the Virgin radio business, and implored that it enter talks with 3i. Meanwhile, the television group ITV, which is SMG's biggest shareholder, has agreed to meet the 3i consortium and its chairman, Lord Alli, the media entrepreneur.

City and industry sources said the approach for Virgin could lead to a break-up of SMG, which also owns two ITV franchises, as well as billboard and cinema advertising businesses.

In unusually blunt comments, Hilary Aldridge, a fund manger at F&C Asset Management, a top three SMG shareholder with a 4.5 per cent stake, said: "Virgin Radio is a great asset but one that would benefit from more dynamic management. We would welcome discussions on its value."

A numbers of shareholders also expressed concern that SMG never brought the bid, first made before Christmas, to their attention. Lord Alli made a face-to-face presentation to Christopher Masters, SMG's chairman, in mid-December but the cash offer became public only on Thursday when the Labour peer wrote to SMG again, seeking talks. Lord Alli was rebuffed on both occasions. SMG said it is not considering the offer, saying it undervalues the Virgin business.

Shareholders said they were concerned about reports that SMG had apparently set its face against selling Virgin Radio. Ms Aldridge said: "We were surprised by reported comments that suggested that SMG was not interested in selling at any price."

Since the latest rejection, Lord Alli's consortium has been contacting SMG's shareholders, seeking talks, in an attempt to put pressure on SMG to sell. ITV, which has a 17 per cent stake, has agreed, in principle, to meet Lord Alli's bidding team. ITV was, in the past, highly critical of SMG's acquisition of Virgin Radio.

Chris Evans, the former owner of Virgin Radio and a 3 per cent shareholder in SMG, is unlikely to support the company - he has clashed repeatedly with SMG management. Crucial now will be the attitude of Fidelity, the investment group which has a 10 per cent stake in SMG.

Other radio groups may also be interested in buying Virgin Radio, which owns one of only three national analogue broadcast licences in the commercial sector. It also has a valuable FM licence in London and a national digital position. Industry sources said this meant that ownership of Virgin could be key in the consolidation game under way in the sector. One source predicted that, at auction, Virgin could fetch more than £130m.

It is understood that Guardian Media Group, Emap, Capital Radio and Chrysalis are potentially interested in Virgin, if it were to become available. City sources said that, in an auction, these trade buyers ought to be easily able to out-gun a financial bidder, such as Lord Alli's consortium. One industry insider said: "Radio assets are not sold on the basis of financial numbers alone but of strategic fit and the cost savings available. That is why a trade buyer will also be able to pay more. Virgin could be the final piece in the strategic jigsaw for some radio groups. It could decide the winner in UK radio."

Virgin Radio was bought for about £200m as part of SMG's Ginger Media acquisition in 2000. Under SMG control, Virgin Radio has suffered a collapse in its audience numbers and profitability.

In the key battleground of the breakfast shows, Virgin's morning DJs, Pete and Geoff, have also lost out. In the latest figures forLondon, the show recorded a market share of just 2.4 per cent.