SMG, the former Scottish Media Group, emerged as a potential consolidator of Britain's fragmented radio industry yesterday by picking up a 14.9 per cent stake in rival Scottish Radio Holdings.
SMG surprised the market with a dawn raid on Scottish Radio shares, buying a 2.9 per cent stake before the market opened and another 12 per cent before noon.
Scottish Radio is the second-largest regional newspaper group in Ireland, also owns Ireland on Sunday and holds a 22 per cent stake in independent radio station Today FM. The company's shares jumped 240p or around 20 per cent to £14.47 sterling (€23.6) by midday, when SMG shares were up 13p or 5.4 per cent at 255p.
Scottish Radio is now valued at around £500 million sterling.
SMG, which spent around £70 million sterling on yesterday's operation, said it would not buy further SRH shares for the time being although it has an option, under British media ownership laws, to raise it to 20 per cent.
"We are going into a cooling-off period; we will wait and watch for a week," SMG chief executive Mr Andrew Flanagan said. SMG's move comes ahead of a British government white paper policy document on the media industry next week, which is expected to clear the way for about a dozen radio players to consolidate to as few as three.
The move on Scottish Radio boosted other stocks in the sector, with Capital Radio 20.45 per cent higher at £13.25 and GWR Group up 50p, or 8.6 per cent, to 630p after a high of 650p.
A stake in Scottish Radio gives SMG a chance to seek representation on the former's board and possibly seek operational synergies, a common strategy for the media industry worldwide.
"We were a bit concerned that other players might move in, and the stake now gives us flexibility. We want to be the leading player in the industry," Mr Flanagan said.
He said he had been in touch with Scottish Radio management since late on Thursday evening and would consider SMG representation on the Scottish Radio board if invited.
SMG has been playing a major role in the consolidation of the radio industry in Britain, having bought Ginger Media, owner of national broadcaster Virgin Radio, for £225 million sterling earlier this year.
Mr Flanagan said he had no intentions of making an immediate offer for the whole of Scottish Radio, although it could make a move depending on the timetable of implementation of the media white paper expected next Tuesday.
Scottish Radio looked vulnerable in April when it made an unsuccessful hostile bid for Border Television which eventually went to Capital Radio for £146 million sterling.
The company also announced lower half-year profits in May but moved to bolster investor confidence with a series of smaller corporate deals including alliances with the Wireless Group, led by former Sun editor Mr Kelvin McKenzie, and rival British radio group GWR.
Scottish Radio also signed a deal with US Internet radio broadcaster BroadcastAmerica.Com.
Schroder Salomon Smith Barney is advising SMG on its acquisition strategy while ABN Amro Hoare Govett is its broker.
