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Capital/GWR merger details unfold: in anticipation of this week's expected announcement, MW plots the potential outcomes.(Radio)
All eyes will be on Capital Radio this Wednesday, when a regular trading update is expected to be accompanied by more details of its proposed merger with GWR.
The two groups ended months of speculation around a week ago when they confirmed they were locked in talks in an attempt to create a commercial radio group which would control around 40% of the sector's advertising revenues.
However, that plan faced a tricky hurdle last Tuesday when the two groups' heavyweights came face to face at a meeting with their opposite numbers at Daily Mail & General Trust (DMGT). As a 29.9% shareholder of GWR, DMGT could make or break the deal as it must give its approval before Capital and GWR can even think about going to the regulators. If the tie-up does happen, the Daily Mail owner will claim a stake of around 15% in the enlarged company.
Paul Richards, an analyst at Numis Securities, believes there are three possible outcomes, with DMGT either approving or rejecting the merger or--a more complicated outcome--the group engineering a break-up of GWR by taking full control of its prized national asset Classic FM before the rest is merged with Capital But Richards is convinced the most likely result will be merger approval, creating a company which would have "significant value for shareholders".
"We see clear benefits of DMGT holding 15% in the enlarged group, rather than a 19.9% stake in GWR [without Classic FM]," he says. "In particular, with Richard Desmond continuing to threaten the launch of a free daily paper in London to rival DMGT's Evening Standard, having access to Capital's London stations could prove invaluable."
One issue which would need to be resolved would be deciding who runs the company. Speculators currently suggest Capital's chief executive David Mansfield may take the same role in the combined company, with GWR's Ralph Bernard assuming his current executive chairman role. As one radio source notes, the pair do "get on very well", although he notes that having two strong bosses running a single business could be asking for ...
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