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NEWS: MERGER OF GWR GROUP & CAPITAL RADIO NOT REFERRED TO COMPETITION COMMISSION BY GOVERNMENT by GRANT GODDARD

www.grantgoddard.co.uk January 2005

The 700m merger between GWR and Capital Radio will go ahead, following the governments decision not to refer the deal to the Competition Commission. The Office of Fair Trading [OFT] has imposed surprisingly few conditions on the merger, mainly the disposal of Capital-owned 'Century 106 FM' in Nottingham. Vincent Smith, OFT director of competition enforcement, explained: "Except in the East Midlands, the radio stations of Capital and GWR do not strongly overlap at a local level. So for national advertisers putting together a radio advertising package, they are largely complementary, rather than competing, alternatives." Without the sale of Century 106 FM, the merged group would have accounted for 66% of commercial radio listening in Leicester, 55% in Nottingham, and 45% in Derby. The speed of the decision surprised analysts. Richard Hitchcock of Numis Securities said: "We almost certainly thought it would be referred to the Competition Commission. So, rather than late 2005, it is more likely to go through in April, speeding up the revenue growth and cost savings the merger will bring." The advertisers association, ISBA, was less enthusiastic about the deal. "We can see the logic in resolving this merger situation without the need for a full inquiry," an ISBA spokesman said, "but our members are still worried about competition issues." But David Mansfield, Capital CEO, said: "This deal is not about synergies. It is about the future. As a combined company we will be able to attract more talent, give a better offering to our listeners and advertisers." Ralph Bernard, GWR chairman, said: "The merger gives us the impetus to be the biggest serious rival to the BBC. They have had the market to themselves for decades. But we now have the power to invest in our programmes and in digital radio." Rival radio groups had lobbied Ofcom to prevent the merged Capital/GWR from applying for new FM licences for the next five years. They also wanted Ofcom to insist that the groups local stations continue to broadcast locally produced programming. But Bernard belittled such pleas: "It was actually difficult for our competitors such as EMAP and Chrysalis to argue against this happening because they were in favour of consolidation anyway. Ofcom will add new content conditions to two of GWRs 30 local licences. 'GWR Bristol' and 'Bath FM' will be required to maintain separate weekday breakfast services for each city, while 'MFM'/'Buzz' Wrexham and 'Chester FM' will be required to continue broadcasting a separate weekday breakfast show for the Wirral. Ofcom determined that GWR has no control over the 18 Classic Gold AM stations that it 'warehoused' to UBC Media, because no material changes to the arrangement have occurred since October 2000 when Ofcoms predecessor, The Radio Authority, accepted the notion that GWR had no control.

News: Merger Of GWR Group & Capital Radio Not Referred To Competition Commission By Government 2005 Grant Goddard

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The combined Capital/GWR, comprising one national station, 55 local stations and 93 channels on digital multiplexes, will control 40% of radio advertising revenue and 36% of commercial radio listening in the UK, with an annual turnover of 243m. The merged group anticipates annual savings of 7.5m by its second year, through more than 100 redundancies and cost cutting measures, two-thirds of which will be in place by September 2006. One commentator predicted that the biggest challenge facing the merged group would be the two competing egos of GWRs Bernard and Capitals Mansfield in the boardroom. Following the approval of this first major radio consolidation, Simon Polito, corporate partner at law firm Lovells, said it was now "open season" for further mergers. "I would expect other radio companies to be eyeing each other up," he said. UBS, which acted for GWR on the deal, has identified 28 possible radio mergers and acquisitions, all but six of which it expects would receive regulatory approval. Analysts anticipate that EMAP will quickly launch a bid for Scottish Radio Holdings [SRH], in which it acquired a 27.8% stake in January 2004, as EMAP knows it cannot afford to wait while its competitors make similar moves. Gary Hughes, EMAP finance director, has said that a combined EMAP/SRH would be a powerful and persuasive proposition for advertisers and would create a fairly potent player in UK radio. Asked about the Capital/GWR approval, Hughes said: "We have been long-term supporters of radio consolidation. We are modestly surprised that the competition process has gone through so quickly and cleanly." A spokesperson for SRH CEO David Goode said: "he feels [the Capital/GWR deal] can only be good for the industry."

[First published in 'The Radio Magazine' as 'Capital/GWR Merger Approved', #665, 8 January 2005]

Grant Goddard is a media analyst / radio specialist / radio consultant with thirty years of experience in the broadcasting industry, having held senior management and consultancy roles within the commercial media sector in the United Kingdom, Europe and Asia. Details at http://www.grantgoddard.co.uk

News: Merger Of GWR Group & Capital Radio Not Referred To Competition Commission By Government 2005 Grant Goddard

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