News story about the decision by the UK government's Department of Trade & Industry not to refer the merger of commercial radio owners GWR Group plc and Capital Radio plc to the Competition Commission, written by Grant Goddard in January 2005 for The Radio Magazine.

1. NEWS: MERGER OF GWR
GROUP & CAPITAL RADIO NOT
REFERRED TO COMPETITION
COMMISSION BY GOVERNMENT
by
GRANT GODDARD
www.grantgoddard.co.uk
January 2005

2. The £700m merger between GWR and Capital Radio will go ahead, following
the government’s 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 group’s 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 GWR’s 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 Ofcom’s
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 page 2
©2005 Grant Goddard

3. News: Merger Of GWR Group & Capital Radio Not Referred To Competition Commission By Government page 3
©2005 Grant Goddard
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 GWR’s Bernard and Capital’s 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