DMGT's Northcliffe sale could herald bid for GCap

LONDON - Speculation that the Daily Mail & General Trust will bid for radio group GCap has been fuelled by its admission today that it may sell its regional newspaper business for as much as £1.6bn, which could then be used to fund the acquisition of the radio group.

DMGT gave up its UK local radio interests in 2000 to GWR in return for a 30% stake in GWR. Upon the merger of GWR and Capital Radio DMGT was left with a 15% stake in the new company, GCap.

The group does own a number of local radio stations in Australia, including Nova, which it has been building up in recent years.

The mooted disposal of Northcliffe, understood to be valued at well above £1bn with some analysts saying as much as £1.6bn, has been interpreted as opening the way for a move back into radio by raising cash at the same time as clearing regulatory concerns over cross-media ownership.

GCap is currently valued at less than £500m, far below its GWR/Capital Radio merger price of £700m.

The thinking behind the regional newspaper sell-off is that DMGT considers that other players in the industry, such as Newsquest and Johnson Press, will become stronger through consolidation and it is not prepared to invest as much to compete with them, according to finance director Peter Williams.

DMGT refused to comment on the speculation linking it with GCap.

However, Williams told The Independent in April that it would make a choice between selling its stake and taking control of GCap, but there would be no change in the "foreseeable future".

DMGT also promised to return a "substantial portion of the net proceeds" to shareholders in the event that it sold Northcliffe.

Based on GCap's current market value, DMGT would need to spend almost £400m to buy the rest of the company. Its current cash reserves are £82.3m.

Several private equity groups are interested in GCap, but none are believed to have approached the company so far.

This morning shares in DMGT soared by 11.02% up 74.5p to 750p while shares in GCap rose slightly up 0.36% to 280p.

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