Capital and GWR get green light for radio merger

Competition regulators yesterday unexpectedly gave the green light for GWR and Capital Radio to merge, allowing them to create the biggest commercial radio group in the UK.

Competition regulators yesterday unexpectedly gave the green light for GWR and Capital Radio to merge, allowing them to create the biggest commercial radio group in the UK.

The Office of Fair Trading (OFT) said it would not refer the merger to the Competition Commission, as long as some minor conditions were met. The news caught the City by surprise, as most analysts were expecting a referral, which would have stalled the merger until late 2005.

Vincent Smith, of the OFT, said: "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."

Shares in Capital and GWR soared by 5.7 per cent and 5 per cent respectively, with Capital shares closing at 431.25p and GWR at 254p, as investors expected a speedy conclusion of the £700m merger. Richard Hitchcock at Numis Securities said: "We almost certainly thought it would be referred to the Competition Commission. So rather than later 2005, it is more likely to go through in April, speeding up the revenue growth and cost savings the merger will bring."

The OFT did say, however, that the merger would result in a substantial lessening of competition in the East Midlands. GWR owns three stations in the region, and Capital owns one, which the OFT feared would create too dominant a position for local advertisers. To overcome these concerns, GWR and Capital have offered to sell Century 106 FM, a Nottingham-based station. This should gain it full clearance from the OFT.

Ofcom, the media watchdog, also clearedthe deal after GWR and Capital agreed to keep separate weekday breakfast shows for Bath and Bristol listeners, and also for listeners in Chester and Wrexham.

Advertisers reacted with more caution, however. Members of ISBA, the advertising trade body, said they would still assess carefully whether the sale of Century will be enough. "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."

GWR and Capital announced plans to merge in September in an all-share, nil-premium deal. The deal will combine London's most popular commercial station, Capital, with GWR's nationwide Classic FM. Together they will control about 40 per cent of the radio advertising market, with one national station, 55 local analogue stations and 93 digital radio stations. The enlarged group will reach 18 million listeners, more than one-third of the market. The companies believe they can save £7.5m costs within two years.

But David Mansfield, the chief executive of Capital, 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."

Changes to the law governing radio ownership came in to effect through the Communications Act last December, opening the door for radio groups to consolidate. Ralph Bernard, GWR's chief executive, 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."