SMG board forced into UTV U-turn MEDIA: COUP MEDIA: COUP Shareholder

0 Comments | Sunday Herald, The, Mar 4, 2007 | by Steven Vass Media Correspondent

OUSTED SMG chairman Chris Masters and his board were forced against their wishes to seek a merger with UTV after institutional shareholders refused to accept acting chief executive Donald Emslie for the role on a permanent basis last year.

It has also emerged that when Masters was pushed out last week, the non-executive board resigned in protest. Hanover Investors, the activist shareholder behind the move, had intended for several of them to stay on.

There is also mounting speculation that SMG, owner of STV and Virgin Radio, will next week reveal whether it breached its banking covenants last year.

Ifso, the group could face charges and renegotiated financial arrangements running to millions of pounds.

The revelations give a true sense of the ruthlessness behind the arrival of chief executive Rob Woodward and chairman Richard Findlay at the Glasgow media group.

It also reveals that they were only the second choice for change at SMG for at least some major shareholders, in lieu of a merger with Belfast's UTV.

So determined were long-suffering shareholders to see change at the top of SMG, they would not allow the company to be led by Emslie, who was seen as part of the old regime and who is staying on as commercial director.

With ITV struggling in a torrid ad market in the second half of 2006, Masters failed to find an A-list candidate to replace Andrew Flanagan, who was himself pushed out last summer.

Fidelity, which is the second largest shareholder with around 15- per cent of the company, led the way in insisting that the only credible alternative was a merger with UTV. This was despite the fact that UTV and SMG had already failed to conclude a merger last September because they could not agree on their relative worths. With SMG having insisted at that time that it was worth 55-per cent of any merged company, the board was forced to go cap in hand to UTV and seek a deal on less favourable terms.

Against everyone's expectations, this failed towards the end of last month after UTV reached a different view of the value of SMG's pension deficit.

With turnaround specialist Hanover having built up a 12.6-per cent stake in the meantime, and persuaded its fellow shareholders to accept Woodward and Findlay in charge of an independent SMG, the stage was then set for a coup last week. Contrary to earlier reports, however, ITV would have abstained rather than voting Masters out.

At a board meeting last Tuesday, the non-executives decided that they would all resign. This tallied with their earlier threat last summer to resign if Masters was forced out at along with Flanagan.

An inside source added that it was as much about corporate governance as a protest. "They were being asked to vote in favour of people they didn't know and a strategy that had not been explained to them. It put everyone in a difficult position, " the source said.