Doubt cast over Virgin Radio float

0 Comments | Sunday Herald, The, Jun 24, 2007 | by Steven Vass

UTV scrapped plans to bid for Virgin Radio after deciding it was worth much less than the GBP100-million-plus that SMG is seeking for it.

UTV, formerly Ulster Television, is understood to have turned its attention to SMG-owned Virgin Radio after pulling out of merger talks with the whole SMG group. But the move on Virgin Radio fell down after UTV decided the radio interest was worth no more than GBP60m.

The revelation will cast a shadow over SMG's expected announcement about its future this week.

Given that the then SMG board was adamant that its radio assets were worth at least GBP100m and is unlikely to have sold at a large discount, it seems probable that UTV reduced its valuation after discovering from Richard Branson's Virgin Group the full extent of restrictions on use of the Virgin brand.

If this means Branson's hold over Virgin Radio is even more restrictive than the City currently believes, it could be damaging to SMG's plans to float Virgin Radio. Virgin Radio's book value is GBP105m, although some sources insist that SMG would settle for between GBP70m and GBP90m in a flotation.

One source told the Sunday Herald:

"There's not a single human being in the City of London who thinks the IPO [initial public offering] is going to happen." The Glasgow company is desperate to offload Virgin, as well as its Primesight and Pearl & Dean advertising businesses, to reduce its debts in order to invest in the STV television business.

UTV considered buying Virgin Radio separately after it withdrew from merger talks with SMG in February. As the owner of a large radio business itself, including talkSPORT and Edinburgh's talk107, Virgin Radio was always UTV's main interest in any takeover.

The merger talks collapsed just days before former SMG chairman Chris Masters was ousted and his board resigned, and chief executive Rob Woodward was installed in a shareholder coup.

Having turned its attention to Virgin Radio in interim, the problem for UTV or any other buyer is that Branson's agreement includes a change-of-ownership clause that gives him the right to veto any deal. This effectively forces them to enter into negotiations with Virgin Group beforehand.

UTV is also understood to have been interested in setting up a joint venture with Virgin Group to exploit the radio business as an international brand.

Virgin Group retains the international rights to the Virgin Radio name and uses it in other countries.

It had been hoped SMG would unveil the board for Virgin Radio this week as part of its wider announcements about the company. While it is understood that current boss Paul Jackson will be the chief executive of the radio business, SMG is still in last-minute negotiations with other board members. SMG is expected to re- emphasise its commitment to the flotation, which it expects to take place in the autumn.

UTV, SMG and Virgin Group refused to comment.