Vibe, 51% owned by Scottish Radio Holdings and 49% by GWR, announced its intention to buy the Bristol-based dance music station in September 2002.
According to a report in the Sunday Telegraph, the Competition Commission has decided that the purchase of Galaxy 101 should not go through, because it would increase GWR's share of the radio advertising market in the west from 75% to 84%.
For the deal to go through, the commission would likely demand that GWR sell its stake in the business, or force the company to contract out the station's radio airtime sales to a third party.
Radio groups, including GWR and Chrysalis, have been gearing up to expand their radio portfolios ahead of the government's communications bill, due to become law this summer, which is set to loosen media-ownership rules.
The news will be a blow to Chrysalis, not least because the £12.5m sale contributed heavily to its first half pre-tax profits of £9m, up from £0.6m last time, as reported last week.
At the results, the company signalled that it was planning to exploit expansion opportunities provided by the bill, once it had sold its TV production business.
Chief executive Richard Huntingford said if, as expected, the sale goes through in June it would allow the company to take advantage of acquisition opportunities that may arise in the industry.
He said: "[The sale of the TV business] would leave us pretty much ungeared and we would, therefore, be in a strong position to look for any acquisition opportunities out there."
The company bought LBC from GWR last September in a deal, worth £23.5m, that also included News Direct.
Other groups poised to take advantage of relaxed media-ownership rules are Jazz FM-owner Guardian Media Group and GWR.
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