SMG spurns Ulster TV tie-up, but takeover stays on the table

Compromise deal to create £400m group edges nearer
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The Independent Online

SMG, the media group that owns Virgin Radio, has rejected a merger approach from Ulster TV (UTV).

High-level talks between the two companies are, however, continuing today to thrash out an acceptable proposal that could see UTV taking control of SMG.

It is not expected that SMG will try and buy its rival because the Scottish company has not yet replaced Andrew Flanagan, who resigned as chief executive last month.

An announcement to update the City about the negotiations is expected this week. A compromise deal is understood to be close, which would create a £400m media group.

UTV, which owns talkSPORT radio and operates the ITV licence for Northern Ireland, recently approached SMG about a "nil premium" merger.

This would mean that both sets of shareholders would own exactly half of the new group, even though there is a significant difference in the valuations of the two companies.

SMG, which also operates the two ITV licences in Scotland, has a market value of £243m, while UTV is valued at £187m.

UTV argued that SMG investors should ignore this valuation gap and agree to use their more valuable shares to acquire UTV's cheaper shares.

UTV considers it has better prospects and management than SMG, which would justify this premium.

The board of SMG has refused to accept this proposal. However, it is keen to do a deal if the right terms can be agreed, which is why it has not publicly rejected the proposal. Under the compromise being worked on today, UTV would control the new company.

But its shareholders would end up owning only around 45 per cent, rather than 50 per cent of the new company, to reflect UTV's lower value.

Investment bank Citigroup is advising SMG. UTV is being advised by stockbroker Numis.

UTV appears to be SMG's only serious suitor. ITV, which wants to diversify away from broadcasting, is unlikely to make a bid.

Rumoured private equity interest has yet to materialise in a formal approach for the company.

Citigroup is working on a valuation for the company's wide- ranging assets, which UTV will have to meet.

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