Kid Jensen's employer foresees a digital future for radio

The new group will reach 18 million listeners by pooling 55 local analogue radio stations, 93 digital ones and one national radio station.

The deal brings Capital FM, Classic FM and Xfm together and creates one of the UK's biggest commercial radio groups.

The advent of digital radio is seen as a driving force behind the deal, which should also lift advertising sales.

Digital cake

Together, Capital and GWR will have 40% of the UK's commercial radio advertising revenue - a market which is estimated at �660m annually - and reach 36% of the UK commercial radio audience.

The companies believe the tie-up will enable them to play a pivotal role in the development of digital radio and to accelerate the growth of commercial radio's share of listening relative to the BBC.

The combined group's deeper pockets and greater audience reach should also give it better access to music entertainment.

Capital and GWR stations Capital Radio Capital Gold Classic FM Planet Rock Xfm Red Dragon Century FM BRMB Essex FM Why UK radio stations want to merge

Digital radio should allow commercial radio groups to compete on a national level against the BBC, and could allow them to replicate their success in local radio, Mark Sevier, analyst at stockbrokers Rowan Dartington told BBC News Online.

Radio currently accounts for about 8% of the UK's advertising cake, but new stations and digital radio could see this reach 10%, a small gain but significant in the advertising market, he said. The combined group has a better chance of getting national advertisers on board, he added.

Capital Radio and GWR revealed they were in talks over a possible merger earlier this month.

Mergers within the industry have been widely expected since the Communications Act relaxed the rules on tie-ups between radio companies.

However, the alliance will still require approval from industry regulators.

Management shuffle?

Capital Radio predicted the new, combined broadcasting group would have revenues of �243m and pre-tax profits of �40m.

See GWR's share price See Capital Radio's share price

Capital shareholders will own a 52% stake of the new company in the all-share, no cash deal.

The top management will remain unchanged, with Capital Radio chief executive David Mansfield and GWR executive chairman Ralph Bernard filling the same two slots in the merged company.

However, Classic FM managing director Roger Lewis will quit the radio station, and the group's board. He will be succeeded as head of Classic FM by the station's managing editor, Darren Henley.

UK's biggest commercial radio groups Capital/GWR (Owner of Capital FM) Chrysalis Radio (Heart FM) EMAP (Kiss FM and Magic FM) GMG Radio Holdings (Jazz FM) Scottish Radio Holdings (Radio Clyde and Radio Forth) The Wireless Group (Talksport) SMG (Virgin) Source: Commercial Radio Companies' Association

The merger "creates a vibrant new radio business with a leading position in an attractive and growing sector," said Mr Mansfield.

Media group Daily Mail and General Trust, which owns just under 30% of GWR, was described as "very supportive" of the tie-up.

Industry-watchers had suggested that DMGT was unhappy about the management plans for the combined group and that this could be a possible sticking point in the merger talks. DMGT will get a seat on the new group's board.

The merger will be implemented by Capital Radio issuing new shares: GWR shareholders will get 60.2 new Capital Radio shares for every 100 GWR shares they own.

Cautious

Both Capital and GWR also issued updates on how their businesses were performing.

Capital Radio said it anticipated a 4% rise in radio revenues in its financial year, which ends on 30 September, but it remained "cautious" about the outlook for the three months to end-December.

GWR said growth in advertising sales had been slower-than-expected over the last quarter, particularly during August.

It forecast a 2% year-on-year rise in revenue at analogue stations - which bring in 92% of the total - for the six months to 30 September.

GWR said it "continues to control costs tightly" and remained "confident" about its prospects for the current financial year.