SMG disposes of its radio stake to cut debt of (pounds) 245m

0 Comments | Sunday Herald, The, Jan 18, 2004 | by Arthur MacMillan

SMG's sale of its 27.8% stake in Scottish Radio Holdings is likely to be perceived as another costly media failure for the once burgeoning Glasgow-based company.

Emap, the publishing and radio group, acquired the holding for (pounds) 90.5 million late on Friday afternoon. Andrew Flanagan, SMG's chief executive, predictably, put a positive spin on the announcement, claiming the sale was "clearly best for shareholders" to allow SMG to "reduce debt and move on". But Flanagan has become used to making such statements, after the sale of SMG's newspapers, The Herald, Sunday Herald and Evening Times, to Newsquest in late 2002.

That (pounds) 216m sale reduced SMG's (pounds) 400m debt. However, the company remained heavily in the red throughout 2003 - (pounds) 245m according to half-yearly figures published last September. The debt now stands at more than (pounds) 150m. It appears there was only one party in the driving seat after the decision to approach Emap was made last week, and it wasn't SMG.

The Sunday Herald understands that SMG's advisers, Citigroup, approached Emap executives on Tuesday morning to ask if they were interested in acquiring its stake in SRH. One insider said days of financial "ping-pong" followed before the final (pounds) 90.5m selling price was agreed upon.

Emap's acquisition confirmed industry speculation that SMG was looking to offload its stake in SRH, which cost the company (pounds) 150m at the peak of the dotcom boom three years ago. However, the asset was written down to (pounds) 79.4m only a year later.

One SMG insider said: "We acquired the SRH shares as a strategic stake but we took our medicine with the write-down. We approached SRH on numerous occasions with a view to bringing the two companies together but they would not entertain it."

Emap, which lost out in its bid for the Glasgow FM radio licence last year, has not taken long to acquire a foothold north of the Border. Gary Hughes, group finance director for Emap told the Sunday Herald: "We feel we have acquired a material stake in a very good radio business at a pretty decent price."

Hughes played down talk of a takeover bid for SRH but he admitted the Communications Act, which loosened radio licence ownership regulations last year, could later play into the company's hands.

Hughes said: "If at some point in the future we put together SRH and Emap's radio assets it would give us commercial radio leadership in every one of the main urban conurbations north of Birmingham."

SRH holds 13 local radio station licences, including Radio Clyde, Scot FM and Aberdeen-based Northsound. The group also holds 43 local newspapers, including the Galloway Gazette, the Ulster Star and the Leitrim Observer. SRH chairman, Richard Findlay, revealed plans to launch a UK national radio station, based in Scotland, in an interview with the Sunday Herald last year.

SMG's remaining assets include Scottish and Grampian Television, Virgin Radio, and Pearl and Dean. Analysts believe the (pounds) 225m it paid to acquire Virgin radio from Chris Evans, the former Radio 1 DJ and television host, was its biggest mistake. However, some will argue that the (pounds) 90.5m paid by Emap for the SRH shares was a reasonable return. "They have got a premium of 10% on the SRH share price this month. In the current market that is a good price," one source said.

The sale of its stake in SRH could tempt Carlton and Granada, which merge as ITV plc on February 2, to acquire SMG's television arm.