GCap knocks back second bid from Global

The deadline is still in place, so GCap's rejection means Global will have to raise its bid to land the company.

Global, the owner of the Heart and Galaxy networks, is also one of four bidders in the auction of Virgin Radio, in which offers have come in at between £60m and £70m.

GCap said this morning it had consulted its major shareholders about Global's offer, implying the board has their backing.

The shareholders, among which the biggest are the Daily Mail & General Trust and fund managers Fidelity and Schroders, have previously been reported to have told Global to come back with a bid above 200p, but are also believed to be supportive of GCap's management.

GCap set out its arguments for rejecting against accepting the bid in its statement this morning (see statement below), which boil down to its belief that the revised bid "significantly undervalues the company" and does not reflect the value that would be created by implementing the strategy of Fru Hazlitt, the new chief executive.

Earlier this month, Hazlitt outlined a cost-cutting and refocusing plan that she said would target operating margin ranges of 12%-14% in the year ending March 2009 and 17%-19% in the year ending March 2010.

GCap also argued Global's offer did not reflect the uniqueness of its assets, which include Classic FM and Capital Radio, and fails to take account of the synergies that are likely to be available from consolidation.

Finally, it said the level of conditionality attached to the proposal was unacceptable since it does not offer a sufficient degree of certainty of successful completion.

GCap's share price dipped this morning by 1.18% to 189p.

GCap statement on rejection of 202p per share indicative offer by Global Radio
On 28 February 2008, the board of GCap Media plc received a revised proposal from Global Radio at a price of 202p per share. This approach was subject to a number of conditions including due diligence and finalisation of financing facilities.

Previously, on 6 January, Global Radio announced that it had made an approach to the board in relation to a possible offer for GCap and that the approach had been rejected by the board. On 7 January, the Board confirmed that it had rejected an approach at a price of 190p per GCap share.

The board has consulted with its advisers and major shareholders. It believes that this revised proposal significantly undervalues the company because it does not reflect the value that would be created by implementing the strategy of the new chief executive, Fru Hazlitt, outlined in the announcement of 11 February.

This strategy set out a plan to position the Company for sustainable revenue growth and to target operating margin ranges of 12-14% in the year ending March 2009 and 17-19% in the year ending March 2010.

These targets are supported by specific initiatives delivering full year profit improvements of £12.3m, which includes total annualised cost savings, excluding the effect of closures and disposals, of £8.8m and a number of other initiatives to drive revenue growth.

Furthermore, the board believes that this does not reflect that these are unique assets for any acquirer and fails to take account of the synergies that are likely to be available from consolidation. The board also believes that the level of conditionality attached to the proposal is unacceptable since it does not offer a sufficient degree of certainty of successful completion.

The board has therefore decided to reject the revised proposal.

The radio advertising market remains stable with current trading in line with the company's expectations. Total like for like revenue for February is forecast to be up 4% and within this, like for like radio advertising is forecast to increase by 7% year on year.