NEWS: CHRYSALIS PLC POISED TO SELL ITS RADIO BROADCASTING DIVISION FOR UP TO £200M by GRANT GODDARD

www.grantgoddard.co.uk February 2007

Chrysalis plc could be about to sell its radio broadcasting business, leaving the company focused on music publishing, music production and record exports. Chrysalis' largest institutional shareholder, Schroders Investment Managers Limited, which holds a 25% stake, has long argued that there are no synergies between the two parts of Chrysalis’ business and that the company should be divided. Chrysalis chairman and co-founder Chris Wright, holding a 26% stake, had always resisted such pressures but, a few months ago, agreed to a strategic review of the company’s activities. His position has been weakened by recent events:  the radio advertising market continues to shrink and trading conditions are described by Chrysalis as “challenging”;  Guardian Media Group plc’s recent purchase of 'Saga Radio' relegates Chrysalis to fourth largest group in the industry;  and Chrysalis’ failure to either win new licences or to acquire existing stations (other than the 'Century' station forcibly divested by GCap Media plc) limits the potential to improve profit margins. On the other hand, Chrysalis’ recent success in the London market with 'Heart FM', combined with its compact portfolio of mainly FM stations (whilst GCap and EMAP plc are saddled with many poorly performing heritage AM stations) make it a valuable asset in which several private equity companies are already showing interest. As a result of speculation, the Chrysalis share price closed last Friday up 10% week-on-week, having traded more than four times its average volume last Monday, the day of Chrysalis’ Annual General Meeting. Analyst Paul Bates at Charles Stanley said Chrysalis’ radio business could raise between £150m and £200m, "but any potential sales process could be complicated as Chrysalis probably either has to find a new entrant to the UK market or split the business up to avoid regulatory issues." EMAP would likely be interested in the 'Galaxy' stations to add to its existing 'Kiss' network, while Guardian Media Group could be interested in the Heart stations to add to the two Century stations it purchased from GCap last October. Analysts at Numis said private equity groups were unlikely to be interested because Chrysalis’ radio business is already well run and therefore offered no "turnaround" possibilities. Patrick Yau at Bridgewell said that Chrysalis had issued an "encouraging trading update" and noted: "Radio has been an unpredictable market for two years now, but the recent RAJAR data positions Chrysalis as one of the strongest groups within the sector and a credible leader in the crucial London market.” He concluded: "We have long argued that there is significant value to be unlocked from breaking up the business."

News: Chrysalis plc Poised To Sell Its Radio Broadcasting Division For Up To £200m ©2007 Grant Goddard

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Redwan Ahmed at Oriel Securities agreed: "Strong RAJAR’s from last week means Chrysalis should hit flat like-for-like radio revenues for the full year.”

[First published in 'The Radio Magazine' as 'Is Chrysalis Ready To Quit Radio?', #775, 14 February 2007]

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 http://www.grantgoddard.co.uk

News: Chrysalis plc Poised To Sell Its Radio Broadcasting Division For Up To £200m ©2007 Grant Goddard

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