Branson and SMG eye radio deal to tie in Virgin brand

SMG is believed to be in talks with Richard Branson's Virgin Group to form a separate company which would combine both of their radio resources.

The Scottish media firm, which earlier this year made tentative moves for a flotation of its Virgin Radio brand, would bow out of any involvement with the new company to focus on its Scottish ITV franchise, while Virgin Group may retain a stake, according to reports. SMG, which last month unveiled a drop in half-year profits, leases the right to the Virgin Media brand from Branson.

Analysts have previously estimated that SMG's radio assets, which it bought for £225 million in 2000, could sell for just £100m.

SMG effectively shelved the idea of an IPO for Virgin Radio last month, saying the move was "unrealistic" in the current market.

Branson, who has been expanding his radio empire abroad in countries including Dubai, Thailand and Italy, previously approached SMG about combining their radio assets, but was refused by the Glasgow firm's previous management.

However, a board shake up, which included the appointment of Rob Woodward as chief executive earlier this year and Richard Huntingford as executive chairman earlier this month, could see his approach treated differently this time around.

Combining Virgin Radio with foreign stations such as Branson's Virgin Radio France would help cushion the company against falling UK ad revenues.

A spokeswoman for SMG said the firm was unable to comment on market speculation.