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EMAP plcs long-anticipated takeover bid for the 72.2% of Scottish Radio Holdings plc [SRH] that it does not already own ground to an acrimonious halt last week, after SRH flatly rejected a cash offer of 374m. The commotion started last Wednesday morning when EMAP issued a statement explaining that it had approached SRH with a cash offer of 1040p per share and had been rejected. EMAP said it was disappointed by this reaction to a proposal which it believes fully values SRH, both on the basis of its current performance and its future prospects, as well as crystallising a premium for control. The statement noted that SRHs share price had not closed above 1040p for the last four years, and EMAP said it reserved the right to make a further offer below the 1040p price should a recommendation by the Board of SRH not be forthcoming. The SRH share price shot up immediately to 1010p, a value not seen since 2002, as 16m shares were traded, more than 800 times the average daily volume of the last three months. SRH retaliated with its own statement later that day, criticising EMAPs valuation of its radio business. EMAP had calculated that a saving of 7.5m was possible in synergies from combining the two businesses. SRH argued that EMAPs valuation of SRH at a multiple of less than ten times its earnings was significantly less than than current market estimates of competitor GCap Media plcs multiples. Additionally, SRH felt that EMAP had undervalued its 'Vibe' stations by only looking at their cashflows, rather than their intrinsic values. SRH argued that EMAP should ascribe a much greater value for these turnaround stations. SRHs statement argued strongly that it had been a consistently strong performer in the radio sector on operational and financial metrics over the last five years and this performance has continued into the current year. However, like other commercial radio groups, SRH has suffered a long-term decline in audiences. Total hours listened to all SRH stations have fallen 10% year-onyear, while hours listened to the two Vibe turnaround stations are down 24% from four years ago, before SRH had acquired them. Apart from EMAP, SRHs largest shareholders are Scottish newspaper group DC Thomson (9.7%), Legal & General Investment Management (5%), investment fund manager Framlington (5%) and Henderson Global (3%). One institutional investor said it was unhappy it had not been shown the details of EMAPs offer before SRH had rejected it: "We think it should be shown to shareholders. There may be justifiable reasons for rejecting the bid but, without being in the loop, we cannot judge." However, a spokesperson for another investment house said: "We have no issue with the fact we, or other shareholders, weren't asked about the EMAP bid. It's not that unusual for a company to rebuff the first offer by itself. Nor is it unusual for a suitor to try to agitate the management into action by seeking support for an acquisition straight from investors. 10.40 a share is a pretty decent offer, and it's worth noting that EMAP is the only bidder on the market. But, as to whether we intend to put pressure on SRH to accept the offer, I'm not going to go there."
News: Scottish Radio Holdings plc Rejects 374m Cash Buyout Offer From EMAP plc 2005 Grant Goddard Page 2

Catherine Stanley, representing minor shareholder F&C Asset Management, commented: "We think SRH is worth more than 1040p, but not a huge amount more. Something starting with 11 could do it, and that is not a huge uplift for EMAP. Standard Life, which holds a 1.8% stake in SRH, said: We are fully supportive of the management and think the offer undervalues the company. DC Thomson would have made a loss of 6m from its stake in SRH if the EMAP bid had been accepted, because it bought its shares at the height of the stock market boom for commercial radio companies. One industry insider explained: "DC Thomson has always been a supporter of SRH. The bottom line is that EMAP will have to pay a significantly higher price than they have offered to get SRH. DC Thomson bought shares at 15 to 16 and they are not going to settle for much less. Between 12 and 14 would be in the region." City opinion on the EMAP offer was mixed. Media analyst Richard MenziesGow of Dresdner Kleinwort Wasserstein said that 1040p looks like a reasonable offer and argued that it valued SRHs radio business at 19 times earnings, higher than SRHs own calculation, because he was including the companys 'Vibe' stations. Richard Hitchcock of Numis Securities disagreed, saying that the company was valued at 1105p, a figure that does not include a premium for control, though he agreed that a combination of the two companies made excellent strategic sense. Malcolm Morgan, a sector analyst at Investec, described EMAPs 1040p bid as a bargain, without much of a premium for control". Altium Capital said: "Ultimately, we expect EMAP to pay up. We regard 1100p per share as a fair take-out price and our intuition is that this would probably secure support from the SRH board and its shareholders." If it can complete its purchase of SRH, EMAP is likely to sell the formers Scottish and Irish newspaper business to Johnston Press for between 130m and 150m. Marco Sciappelli, former finance director of Johnston, is a nonexecutive director on the SRH board, whilst Lord Gordon, SRH chairman, is on the Johnston board. Asked about this possible deal, Tim Bowdler, chief executive of Johnston, said: "He (Lord Gordon) doesn't come here to talk about SRH." He added: "We make no secret of the fact that, were the SRH titles to become available, we would be interested in having a look at them. The fit is not bad." By the end of last week, SRHs share price was still 1002p, 15% up on the previous weeks closing price. "There's a realistic chance there will be a standoff for six months or a year," commented Malcolm Morgan, radio analyst at Investec Securities. "EMAP might have to say that market conditions have changed before they can offer to pay more than 1040p. At the moment, it's hard for them to go hostile. It's hard to pay more and hard to pay less."

News: Scottish Radio Holdings plc Rejects 374m Cash Buyout Offer From EMAP plc 2005 Grant Goddard

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Rumours persist that EMAP may decide to sell its radio division altogether if its bid for SRH fails. One insider suggested: "If EMAP can't make the SRH deal work, they may decide to get out of radio. If they can't lead the consolidation in the sector, then EMAP will become less interested in being involved." One unnamed media analyst added: "It's not in the realms of wild fantasy to suggest EMAP will sell out of radio if it can't get SRH. They only make about 15% of their revenues from radio. A lot of us have said that if they can't get bigger, they will have to get out."

[First published in 'The Radio Magazine' as 'Emap And SRH Lock Horns', #687, 7 June 2005]

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

News: Scottish Radio Holdings plc Rejects 374m Cash Buyout Offer From EMAP plc 2005 Grant Goddard

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