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The boards of the two groups announced terms of the merger this morning, which will see the merged group owning one national and 55 analogue stations, and 93 digital stations, reaching approximately 18m listeners.

The new group, which will have a combined turnover of £243m, will represent a 36% share of the commercial radio audience but 40% of the ad market, which has raised concerns at UK advertiser group ISBA.

The Daily Mail & General Trust and the directors of GWR will hold approximately 35.1% of the new company. Based on the share capital of the two groups, Capital Radio shareholders will hold 52% and GWR shareholders 48%.

For shareholders, the deal will bring estimated annualised pre-tax cost savings of at least £7.5m in the second full year following completion of the merger.

After its completion, Ralph Bernard, executive chairman of GWR, and David Mansfield, chief executive of Capital Radio, take on the same respective roles in the merged company.

According to Mansfield, the merger creates "a new radio business with a leading position in an attractive and growing sector with common strategies and complementary brands."

"In addition to the synergies that we have identified, we will concentrate our efforts on further value creation over time by combining the strongest qualities of both companies within the new group," he said.

Bernard said: "This merger is a fantastic opportunity to create UK commercial radio's champion of the digital age. The enlarged group will be in a strong position to drive the growth of commercial radio's share of listening and total advertising by providing enhanced services to listeners and greater opportunities for advertisers. We expect this to deliver increased value to shareholders over time."

Today Capital's share price was up 1.4% or 6p to 442.5p and GWR was up 4.1% or 10.75p to 270.75p. The merger is conditional on regulatory approval.

The new merger may spur other radio stations into consolidation talks, with Emap, the next biggest commercial radio group after Capital and GWR, already expressing an interest in upping its 27% stake in Scottish Radio Holdings by taking full control of the £320m company.

That deal is likely to go through with relative ease because Emap does not own any radio stations in Scotland.

Today's merger announcement comes as the boards of Capital Radio and GWR reported an increase in revenues for the year to September 2004 of 4% and 3% respectively.

Ahead of its full-year results in November, Capital Radio is anticipating that radio revenues for the quarter to September 2004 will increase 4% year on year. This compares with a 5% increase for the quarter to June.

Capital said that it was achieving particularly strong growth from The Century FM Network, Xfm and the newly acquired Choice FM.

GWR has also released a trading update for the same period, with revenues up 3% to September 30. The group said that, following a strong start to the year, it has seen slower growth than expected in the second quarter, particularly in August.

Despite revenues being up 5% at flagship station Classic FM, managing director and programme controller Roger Lewis announced that he is stepping down from the board in October. He will be replaced by Darren Henley, who is currently managing editor.

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