Capital Radio, the owner of Southern FM, was today expected to confirm it is in advanced merger talks with fellow commercial radio giant GWR.

The two groups were understood to be considering a move which would see stations such as Capital FM and Classic FM brought into the same company.

The pair were expected to make a stock market announcement confirming they are in talks after shares in both companies rose in recent days on the back of speculation.

If the merger were to go ahead, the new group would have a market capitalisation of about £710 million.

It is understood Capital chief executive David Mansfield would continue in that post at the enlarged company and Ralph Bernard of GWR would be chairman.

A GWR spokesman declined to comment on the speculation and no one from Capital Radio was available for comment.

But reports suggested the Daily Mail & General Trust, which has a 29.9 per cent holding in GWR, was open-minded about the merger. Other institutional shareholders were also understood to support the deal.

Capital, which claims to broadcast to more than half the UK population, has made no secret of its ambition to expand through acquisitions.

The group's radio stations include Capital FM, Century FM, Capital Gold and Xfm, as well as regional stations such as Red Dragon in south Wales and BRMB in the Midlands.

GWR has more licences and a larger audience share than any other commercial radio group in the UK, with stations including Classic FM and 33 local offerings such as Essex FM, Leicester Sound and Trent FM.

Consolidation within the industry has been widely expected following the introduction of the Communications Act, which changed the rules governing the merger of radio companies.

In May, Capital reported flat half-year profits of £12.1 million, while revenues for the six months to March 31 rose by four per cent to £59 million.

In the same month, Bristol-based GWR said pre-tax profits before one-off items and goodwill for the year to March 31, had soared by 99.5 per cent to £17.1 million as structural changes and business improvements made during the advertising downturn, paid off with the market recovery.

Tuesday September 21, 2004