Global Radio Makes An Offer Which GCap Cannot Refuse

Global Radio has decided to take over its competitor GCap in a deal worth 375 million pounds. Global Radio owns Heart 106.2 and Galaxy and GCap owns Capital Radio, Classic FM and XFm. Global Radio announced that GCap had accepted its 225p per share offer.

The deal took place an hour after the expiry of the deadline of 5pm, which was fixed by the takeover panel and which was extended by 24 hours. The price of 225p per share of GCap is an increase of 86% over its share price of 121p on the 4th of January, which was one day before Global Radio made its intention clear of buying Gcap. There were also some worries on whether the deal would come through as an inquiry by Ofcom in the phone-in competition on GCaps radio stations might cancel the deal but there were no problems on that front. Global Radio had to arrange finance even though there was talk of a credit crunch and its investors such as John Magnier, Dermont Desmond, Micheal Tabor and J P McManus have agreed to pump in two thirds of the required funds. Micheal Tabor is incidentally, the father of Ashley Tabor, the chief executive of Global Radio.

Global Radio had already made two offers to buy GCap at 190p per share and later at 202p per share, both of which were rejected by GCap. It was on 4th of March that Global made one more bid for the company by offering them 225p per share and which was then accepted by GCap's board of directors. The chairman of Global, Charles Allen said that GCap was a very strong business and that its brand and assets would complement those of the Global Radio Group. He further added that they were thrilled at the chance of building on GCap's position as the major commercial radio player and pledged to provide the best platform to their listeners and their advertisers. The deadline for a firm offer had lapsed in the previous week but Global had asked for an additional 5 days, which was granted. GCap's long term investors such as Daily Mail, Schroders, General Trust and Fidelity, who witnessed a drop in their stakes after the merge of Capital Radio and GWR in 2005 in a deal worth 711 million pounds were happy with the offer made by Global. Before Global's offer, GCap had projected future revenues to remain static, while it expected income in the quarter up to March to be higher by around 4%. Global had already taken over Chrysalis Radio in June 2007 for 170 million pounds and this latest acquisition will make Global Radio a giant controlling almost half of the UK's radio advertising, with Galaxy, Heart, LBC, Classic FM, XFm, and Capital Radio all under one roof. However, GCap's newly appointed chief executive, Fru Hazlitt was insistent that her her ideas to take the company forward would result in more value for the company's shareholders compared to Global Radio's offer. But Global Radio had already announced that “The directors of GCap intend unanimously to recommend that shareholders vote in favor of the transaction”.

However, the takeover will still be taking place at a time when the UK economy is facing a tough time and there is worry about a weak economy and dim prospects surrounding the British advertising industry, with many advertisers taking the Internet route and also other competitors like the BBC. So Global Radio's thinking that if you can not beat them, buy them and GCap's thinking that if you can not beat them, join them already seems to indicate some common thinking between the two parties. But according to experts commercial radio revenues grew by just 2.8 % to 598.2 million pounds in 2007 after falling in the previous 2 years. So, the current year will indicate as to whether Global Radio has made the correct choice by picking up GCap.

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Article written by: Craig Parker - Make Money Expert