€200 million transaction subject to approval of two market regulators and Minister It is likely that Denis O'Brien's radio station takeover deal will stand or fall on the definition of the markets in question, writes Arthur Beesley, Senior Business Correspondent.
Denis O'Brien has strengthened his business empire with a €200 million deal to buy the national radio station Today FM, Dublin channel FM 104 and Highland Radio in Co Donegal.
The transaction is subject to the approval of two market regulators - the Broadcasting Commission of Ireland (BCI) and the Competition Authority - and Minister for Enterprise Mícheál Martin. But even if O'Brien has to sell other radio interests to gain control of Today FM, the biggest independent radio station, the deal puts him in a prime position in the commercial radio sector. Highland has the largest market share of all local Irish stations and FM 104 constantly vies with his 98 FM for primacy in Dublin.
So O'Brien will be second only to RTÉ in the radio business. Coming five months after he increased his personal fortune by $800 million (€580.7 million) in a refinancing of his Caribbean mobile phone group, Digicel, the transaction also underscores the belief that O'Brien is determined to build an ever-larger stable of Irish media assets.
After TV3 changed hands for €280 million almost a year ago, the Today FM transaction again illustrates the allure of Irish media for domestic and international investors. In spite of fears of an economic downturn, business people and their banks continue to foresee healthy pickings from a €1.68 billion advertising market. Radio took in €124 million last year, says the Irish Advertising Practitioners' Institute.
Four groups were in the shake-out for Today FM, The Irish Times among them. That implies confidence in future market conditions and a belief that control over high quality assets is the best protection against rivals and any deterioration in advertising.
However, the acquisition of Today FM and its sister stations raises serious competition issues for O'Brien. In addition to 98 FM, he also owns the national current affairs station NewsTalk and Spin 103.8, the Dublin youth station. He is also a large shareholder in East Coast Radio in Co Wicklow and was recently awarded a licence to introduce a Spin South West service from Limerick.
Therefore scrutiny of the deal will centre on whether it gives him control of an inappropriately large share of the radio market or reduces media competition generally.
Note also that the transaction comes amid O'Brien's stakebuilding in Independent News & Media (INM), publisher of the Irish Independent and Sunday Independent. His 8.6 per cent shareholding in INM means he is now the second-largest investor in that group behind Sir Anthony O'Reilly.
Widely perceived to have designs on outright control of that group, he has challenged Sir Anthony's grip on the organisation in strident terms but never outlined his plans for that investment. Yet whatever his ultimate intentions, O'Brien's minority shareholding in INM does not give him operational control.
This may prove significant when the BCI and the competition body examine the Today FM deal. Their inquiries will take place in parallel over the coming weeks and months. Martin can veto the transaction having considered the competition body's assessment, but such power has never been exercised in the past.
Emap, the British group which is selling Today FM, must now ask the BCI to sanction the transfer of its radio licences to O'Brien's group Communicorp.
O'Brien owns five of the 33 licences in issue from the commission, or 15.15 per cent of all current licences. While the commission considers anything over 25 per cent to be an "undue amount of ownership", the addition of three new licences will bring O'Brien's share to 24.24 per cent. The body will have to carry out an audit of O'Brien's compliance with the terms of his other licences because the deal takes his share of of the action further above a threshold of 15 per cent. In addition, the body will also have to consider O'Brien's INM stake.
The examination by the Competition Authority will ask whether the deal results in a significant diminution in competition in the markets in which the stations operate. It is likely, therefore, that the deal will stand or fall on the definition of the markets in question: whether it embraces radio and all other media; or radio nationally and locally in isolation from other media.
FM 104 might well prove to be the most sensitive case given 98 FM's strength and O'Brien's control of Spin. But Today FM might also prove contentious in light of O'Brien's ownership of NewsTalk, the only other national commercial station. Whatever about combining FM 104 and 98 FM, it is open to the authority to seek agreement from O'Brien to sell off an asset to maintain competition.
In addition, O'Brien could well make the case that Today FM's "big ticket" advertising category means it is not in direct competition with NewsTalk. Having broken RTÉ's control over all 10 of the top 10 most popular radio slots this year, it could be argued that Today FM competes more with the national newspapers and television for advertising. In that context, it might be argued that the deal actually strengthens competition. None of that is to pre-empt the authority, which will report in the first instance to Martin.
The Minister cannot overrule an authority decision to block the deal, but he can block it on his own. It would be extraordinary, however, to do that without a request from the authority.