Following Andrew Flanagan’s sudden departure from the chief executive job at Scottish Media Group plc [SMG] “by mutual consent”, a merger or acquisition of the company becomes more likely than ever. UTV plc is known to be interested in a merger with SMG that would make 'Virgin Radio' its second national radio station, but it would have to pay in shares unless additional cash were raised from the stock market. Mecom, the media group led by David Montgomery, has already built a small stake in SMG and could mount a bid. Lord Alli, whose £100m bid for Virgin Radio last year was firmly rejected, could return to the fray. Investment company Fidelity, the largest institutional shareholder in SMG at 15%, is reported to be “supportive” of the board’s plan to appoint headhunters to find a new chief executive. Nevertheless, analysts say that Fidelity is also part of an alternative plan, supported by 25% of the company’s shareholders, to have former Channel Four Television commercial director Rob Woodward appointed as chief executive and former Scottish Radio Holdings plc chief executive Richard Findlay appointed as chairman. Woodward said: "I've been looking at this company for a very long time. It has been on the back foot for many years and there is a huge opportunity to develop its assets." Findlay added: “We are looking at something that’s friendly because the company is rather bruised right now and needs treatment appropriate to its current condition. I’m backing Rob because he’s a very good operator, he knows the business well and he’s got a very good brain.” Woodward said he refuses to work with SMG chairman Chris Masters, who rejected his overtures in March for a role in SMG. If Masters refuses to follow Flanagan out the door, Mecom could launch a hostile bid to install Woodward and Findlay. The unknown factor remains ITV plc, SMG’s largest investor at 16.83%. The City has been merciless in its criticism of SMG under Flanagan. One commentator said: “Flanagan oversaw a series of strategic blunders”. A media analyst added: "He is a nice guy but, in some ways, it is amazing that he has lasted as long as he has. He has presided over a long period of value destruction. You only have to look back at the calamitous events of a few years back. Flanagan paid a massive price for the stake in Scottish Radio Holdings, a non-core asset, and it was substantially more than the takeout price by EMAP." Another analyst said: "There was also the fiasco with Ginger Media [Chris Evans' company]. They overpaid at the top of the market, only for Evans later to be sacked." A source close to the SMG board admitted: "Andrew has not been flavour of the month with the institutions." Acting chief executive Donald Emslie responded to the criticisms: “Look at what we have done in TV development and with Virgin Radio. Look at the
News: Exit Of Scottish Media Group plc CEO Flanagan Hastens Takeover Or Merger Prospects ©2006 Grant Goddard page 2

news programmes we are making. We have got ''. This new building [SMG headquarters at Pacific Quay] is a creative vision. It was designed top to bottom with the creative process in mind.” Meanwhile, the media industry is busy debating who might be the next corporate honcho to suffer at the hands of shareholder dissatisfaction. Flanagan’s ousting followed hot on the heels of a similar departure from Future Publishing plc of chief executive Greg Ingham, after he had reported a £12m loss to shareholders. One media analyst commented: "Any media chief executive is really seeing their performance cruelly exposed at the moment by the cyclical downturn. We've seen two go – we could certainly see more." This week, GCap Media plc chief executive Ralph Bernard comes under scrutiny from shareholders at the company’s Annual General Meeting, only days after the share price hit a new all-time low of 210p. Chrysalis plc shares also hit a new all-time low of 109.25p last Friday, and Fidelity is now the largest shareholder in the group.

[First published in 'The Radio Magazine' as 'Flanagan Exit Heralds Likely SMG Shakedown', #746, 26 July 2006]

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: Exit Of Scottish Media Group plc CEO Flanagan Hastens Takeover Or Merger Prospects ©2006 Grant Goddard

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