MMC report casts doubt on Capital Radio's expansion hopes

Capital Radio's ambitions to expand its radio interests took a knock yesterday when Margaret Beckett, President of the Board of Trade, published a report suggesting its failed bid for Virgin Radio would not have been allowed to go ahead. Peter Thal Larsen reports

The report, by the Monopolies and Mergers Commission (MMC), has no direct impact on Capital, as DJ Chris Evans' Ginger Productions snatched Virgin Radio from under the group's nose in December with an pounds 85m bid. Nevertheless, it suggests that Capital Radio will find it hard to pursue other London radio stations such as Melody FM without being forced to sell parts of its empire.

Hanson is currently considering offers for the easy listening station from a range of radio groups including Emap, GWR and Scottish Radio.

As Melody has a slightly larger audience than Virgin, however, the MMC would be almost certain to block a Capital bid. "It now seems unlikely that Capital would be allowed to bid for Melody," said Paul Richards, an analyst at Panmure Gordon.

The report found that allowing the bid would have given Capital 68.8 per cent of the London market for radio advertising and a 46 per cent share of the national market. This, the MMC found, would reduce competition for advertising and probably raise rates.

The MMC said the merger "may be expected to operate against the public interest" and recommended it could only go ahead if Capital sold Capital Gold, its medium-wave station.

However, the Department of Trade and Industry stopped short of saying it would have definitely blocked the deal. Margaret Beckett said: "In the unlikely event that the proposed merger were to be reactivated, I should wish to consider further what action, if any, should be taken."

In a statement, Capital Radio said that it had "the headroom under the Radio Authority ownership rules to expand in radio within the UK". The company plans to discuss the report with the Radio Authority and the Office of Fair Trading before deciding on any future moves. Capital Radio shares firmed 5p to 520p.