News story about the likely rejection by the board of UK media owner Scottish Media Group plc of a 50:50 merger offer by UTV plc, written by Grant Goddard in August 2006 for The Radio Magazine.

1. NEWS: SCOTTISH MEDIA GROUP
PLC BOARD MEETING
EXPECTED TO REJECT 50:50
MERGER OFFER FROM UTV PLC
by
GRANT GODDARD
www.grantgoddard.co.uk
August 2006

2. The board of Scottish Media Group plc [SMG] met on Monday and was
expected to reject an offer from UTV plc [formerly Ulster Television] of a 50:50
merger, on the grounds that it undervalues SMG’s business. SMG has a
market value of £221m, while UTV is worth £175m, making a merger on equal
terms “an attempt to take the company over at a discount”, according to one
SMG insider.
UTV had earlier warned: “Discussions are at an early stage and there can be
no certainty that a merger will occur, nor as to the structure or terms on which
any merger might happen.”
Talks had started between UTV’s adviser Numis and SMG’s adviser Citigroup
in the hope of creating a “merger of equals”. A UTV insider said: “The deal is
not predicated solely on market capitalisation. You also have to look at how
well the two companies are performing. SMG can hardly be described as a
company that is doing well. UTV, however, has a lot of credibility in the City for
integrating large transformational deals such as that of Wireless Group [plc].”
One investor in SMG said: “If they could make cost savings of £6m to £7m a
year through this deal, then I believe that SMG could justifiably accept a deal
on a 50/50 basis.”
Despite SMG’s protestations that its business is more valuable than UTV’s, its
own broker, ABN Amro, had last week reduced SMG’s earnings forecast for
2006 by 11% to £18.2m.
A merger between UTV and SMG would bring two of the three national
commercial radio stations ('Talksport' and 'Virgin') under common ownership,
presenting opportunities to sell joint advertising and to reduce the costs of both
operations. Patrick Yau, media analyst at Bridgewell Securities, said: "This is a
highly opportunistic bid from UTV, but SMG haven't yet kicked it into touch. On
the face of it, there is more benefit to UTV shareholders as it gives the
company access to a national radio brand outside of their all-speech station.
Although investors are wary of consumer-facing advertising stocks at present,
we believe that cost savings (particularly in the radio business) and the quest
for scale could persuade shareholders to back the merger”.
Redwan Ahmed, media analyst at Oriel Securities, said: “SMG has no cash,
it’s made no acquisitions [recently], it’s just bumbling along. Investors are
getting rather fed up.” It is anticipated that, if UTV merged with SMG, the
latter’s Primesight advertising division and Pearl & Dean cinema advertising
business would both be sold, enabling the combined company to re-focus on
television and radio broadcasting.
Former Channel Four executive Rob Woodward and former Scottish Radio
Holdings plc CEO Richard Findlay are rumoured to be launching a rival bid for
SMG, offering a £300m cash alternative funded by private equity groups. An
insider to the Woodward bid said: “It is a very interesting situation. It would be
a reasonable thing to assume that an offer is being put together.”
News: Scottish Media Group plc Board Meeting Expected To Reject 50:50 Merger Offer From UTV plc page 2
©2006 Grant Goddard

3. News: Scottish Media Group plc Board Meeting Expected To Reject 50:50 Merger Offer From UTV plc page 3
©2006 Grant Goddard
Last week, SVG Capital raised its stake in SMG from 3.9% to 5%, making it a
key player in the company’s future alongside Fidelity (13%) and ITV (17%),
while 3i might also re-emerge as a possible buyer, despite its £100m bid in
February 2005 for SMG’s 'Virgin Radio' station having been rejected.
Another possibility is that SMG could launch a counter-bid for UTV, offering a
45% stake in the merged company. One UTV shareholder explained: "Such a
deal would still appear to be earnings-enhancing for SMG from 2007 onwards."
As a UTV executive commented: “Last week’s approach was an opening
salvo.”
As 'The Radio Magazine' went to press, the outcome of the SMG board
meeting was still unknown. An SMG spokeswoman said that, as soon as the
board reached a decision on UTV's offer, it would be communicated to the
market.
[First published in 'The Radio Magazine' as 'SMG Rejects UTV Offer', #750, 23 August 2006]
Grant Goddard is a media analyst / radio specialist / radio consultant with thirty years of
experience in the broadcasting industry, having held senior management and consultancy
roles within the commercial media sector in the United Kingdom, Europe and Asia. Details at
http://www.grantgoddard.co.uk