Virgin Radio owner sells stake in SRH to reduce debts

A wave of consolidation in the radio industry was being predicted last night after the Kiss FM owner Emap bought a 28 per cent stake in its rival Scottish Radio Holdings for £90.5m in cash.

The move also sparked off speculation that the seller of the stake, SMG, was under financial pressure again. Debt before this deal was about £245m. Some analysts said that the deal could be the first stage in the complete break-up of SMG, which has sold its Glasgow Herald newspaper but retains Virgin Radio, two ITV licences and outdoor and cinema advertising businesses.

SMG, the former Scottish Media Group, sold the stake at £9.30 a share, having acquired it at some £15 a share or £150m in late 2000 and early 2001. City sources said that SMG put the holding up for sale only in the last three days. New rules on radio ownership, which came into effect this year, allow for significant consolidation in the sector.

Gary Hughes, the finance director of Emap, said the SRH holding "was a strategic stake that may be useful in the radio consolidation game". He added: "We have no current intention to bid for SRH. [But] if we did come together in the future, it would be a pretty good fit."

SRH has "heritage" radio stations spread across the country. Emap also has many similar stations, though it also has radio interests aimed at other groups, such as youth.

Mr Hughes said the SRH deal was "completely disassociated" with the abrupt departure of Emap's radio division chief, Tim Schoonmaker, earlier this month. There has been speculation he left after disagreeing with the board on acquisition strategy, though he said he wanted to set up his own business.

SRH never welcomed the association with SMG, while SMG was frustrated at having attempts to buy the rest of the group, or even form partnerships, rebuffed. SMG said synergies had also been reduced after asset sales. SRH shares closed yesterday at £8.88.

Andrew Flanagan, SMG's chief executive, said: "'We have explored all the options for the stake and it is clearly now better for our shareholders that we sell the shareholding, reduce our debt and move on."

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