Advertisers fear rates hike if Emap and SRH merge

Media buying agencies are urging Emap to press ahead with plans to mount a £380m takeover of Scottish Radio Holdings. But advertisers fear that the move would allow the combined group - commanding between 25 and 30 per cent of UK commercial radio revenues - to raise advertising rates.

Media buying agencies are urging Emap to press ahead with plans to mount a £380m takeover of Scottish Radio Holdings. But advertisers fear that the move would allow the combined group - commanding between 25 and 30 per cent of UK commercial radio revenues - to raise advertising rates.

One influential member of the advertising trade body Isba warned that the merger of GWR and Capital Radio, which was announced in September, could lead to an increase in rates of 3 per cent. He said there are fears that Emap, which already has a 27 per cent stake in SRH, could follow suit and increase rates if it buys the rest of the company.

Emap's Tom Maloney and SRH's David Goode will both report results this week, but despite mounting takeover speculation, neither is expected to make an announcement. Advertisers and media buying agencies are split over whether a tie-up would be good for the industry. Emap owns radio stations including Kiss 100 and Rock FM, while SRH mainly owns local stations in Scotland.

Derek Manns, head of radio, at media buying agency Starcom Mediavest, said: "We hope that this consolidation will enable the commercial radio companies to be more confident about investing in the medium and to build up the market, rather than trying to take market share from competitors."

Helen Keable, head of radio at agency Manning Gottlieb OMD, said that despite concerns over less competition in the radio sector, a takeover of SRH by Emap would strengthen commercial radio against strong competition from the BBC.

But some advertisers warned that combining the two advertising sales houses could lead to higher rates - and richer pickings for media buying agencies.

Speculation that SRH is readying itself for an approach intensified after it appointed investment boutique Greenhill as an adviser. Greenhill has a good track record of selling Scottish media assets, advising SMG on its sale last year of The Herald newspaper. Analysts are predicting a wave of consolidation in the radio broadcasting sector as a result of the Communications Act, which eases restrictions on mergers.

Because the proposed GWR/ Capital Radio merger would see the combined entity control as much as 40 per cent of the market, the Office of Fair Trading is investigating. The OFT will announce whether it will refer the deal to the Competition Commission next month. Emap is expected to await its decision before deciding whether to proceed with an SRH takeover bid.