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 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 owns two ITV franchises and billboard and cinema advertising businesses.
In unusually blunt comments, Hilary Aldridge, a fund manger at F&C - 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 could welcome discussions on its value."
A number of shareholders 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 his offer.
Shareholders said they were concerned about reports that SMG had apparently set its face against selling Virgin Radio.
Following the latest rejection, Lord Alli's consortium has contacted SMG shareholders, seeking talks, to try 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. Chris Evans, the former owner of Virgin Radio and a 3 per cent shareholder in SMG, is unlikely to support the company, as he has clashed repeatedly with SMG management. The attitude of Fidelity, which has a 10 per cent stake, will now be crucial.
It also emerged yesterday that other radio groups would be interested in buying Virgin, which owns one of only three national analogue broadcast licences in the commercial sector. It is understood that Guardian Media Group (GMG), Emap, Capital Radio and Chrysalis may be interested in Virgin Radio.
City sources said if Virgin Radio was put up for auction, it would be likely to fetch more than the pounds 100m offer made by Lord Alli's consortium. Some reckoned it could make pounds 130m.
Virgin Radio was bought for about pounds 200m as part of SMG's Ginger Media acquisition in 2000 at the height of the stock market boom. Under SMG control, Virgin Radio, a rock station, has seen a collapse in its audience numbers and profitability.
Richard Menzies-Gow, an analyst at Dresdner Kleinwort Wasserstein, said: "They've yet to prove they can truly run a radio business."
Since the end of 1999, Virgin combined its AM and FM audience and it has dropped by 40 per cent, from 24.7 million listening hours per week to 14.8 million in the most recent figures. Estimated earnings, before interest and tax for the current year at Virgin Radio, are forecast at pounds 5.6m.
In the key battleground of breakfast shows, Virgin Radio's morning DJs, Pete and Geoff, have lost out. In the most recent figures for the lucrative London market, their show had a market share of just 2.4 per cent.
Mr Menzies-Gow said: "GMG is particularly keen and can afford a longer- term view on the investment so would be our favourite to win in an auction."
John Myers, the head of radio at GMG, has said it would be interested in acquiring Virgin. David Mansfield, the chief executive of Capital Radio, recently reaffirmed his interest, despite Capital's forthcoming merger with GWR, which will give it 40 per cent of the radio advertising market.