News story about City expectations that UK media company Chrysalis plc will become the target of a takeover bid following disappointing results from its local commercial radio division, written by Grant Goddard in January 2005 for The Radio Magazine.

1. NEWS: CHRYSALIS PLC
BECOMES TAKEOVER TARGET
AFTER DISAPPOINTING RADIO
PERFORMANCE
by
GRANT GODDARD
www.grantgoddard.co.uk
January 2005

2. Chrysalis plc could become the target of a takeover bid, following a poor
performance in the latest RAJAR radio audience survey and a profits warning
that forecasts a 3% decline in revenues, rather than the 3% increase that
analysts had expected. This was the company’s third profit warning wthin five
months. As a result, the City cut Chrysalis’ profit forecasts by a quarter and the
company’s shares fell immediately by 9%.
Last Wednesday, the day before new RAJAR data were released, Chrysalis
chairman Chris Wright told investors at the company’s Annual General Meeting
that the 3% decline was the result of "marked volatility with specific softness in
the national marketplace" combined with “the lower audience figures” from the
previous RAJAR survey. Wright told the meeting that Chrysalis “hope to regain
our lost audience share over the next two RAJAR surveys.”
When the next day’s RAJAR data proved to be so disappointing for Chrysalis,
analysts at Canaccord Capital downgraded the company’s shares from 'buy' to
'hold' and revised its target price from 230p to 199p. Analysts at Panmure
lowered its target price even further to 160p and made a 'sell'
recommendation. Chrysalis’ broker, Dresdner Kleinwort Wasserstein, lowered
expected pre-tax profits for 2005 by 28% to £8.1m. Paul Bates, media analyst
at Charles Stanley, said that the company’s flagship London station 'Heart FM'
was central to the problem: “To some degree, Chrysalis have maintained an
optimism, a kind of ‘front’ in terms of how they see Heart doing, that was
slightly in denial.”
Chrysalis Radio chief executive Phil Riley said that the company had been
refreshing Heart FM’s image for the past six months. "You never ignore
evidence if it suggests there is something wrong," he told The Guardian.
"Since the last RAJAR wasn't great either, we have spent time looking at it and
refreshing the logo, image and [creating] a new ad campaign to move the
brand and station on. But there is a time lag between doing it and it showing in
the numbers."
Knowing that it has to be become a bigger operation to compete with the
merged Capital/GWR operation, Chrysalis had recently made a £100m bid for
the radio assets of the Guardian Media Group, but this offer was rejected on
the grounds that it underestimates their value. Last week, fund manager
Schroder increased its stake in Chrysalis to 24%, coming close to the 26%
stake owned by Chrysalis co-founder Chris Wright. Speculation is mounting
that Schroder wants to see an improvement in the company’s performance,
knowing it will face increased risk as an acquisition target. In a note published
after the poor news from RAJAR, Numis Securities said: "Following today's
disappointment at Chrysalis, a deal looks more necessary than ever and the
shares look vulnerable in our view." One business commentator noted that
Chrysalis “faces a battle to maintain its credibility and, if the lack of momentum
continues, its survival.” But Chrysalis chief executive Richard Huntingford said
the company was not under pressure to strike a takeover or merger deal after
the latest profit warning and RAJAR data were released.
News: Chrysalis Plc Becomes Takeover Target After Disappointing Radio Performance Page 2
©2005 Grant Goddard

3. News: Chrysalis Plc Becomes Takeover Target After Disappointing Radio Performance Page 3
©2005 Grant Goddard
[First published in 'The Radio Magazine' as 'Chrysalis: Hunter Or Hunted?', #669, 5 February 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