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Peter Williams, DMGT's finance director, who already sits on the board of GWR, will see the company's stake in the merged radio operation reduced to 15% if the merger goes ahead.

Capital and GWR are expected to report trading statements this week, with the tie-up to be announced shortly afterwards.

Shares in Capital, owner of London's 95.8 Capital FM, and GWR, owner of nationwide station Classic FM, shot up last week by 7% and 8% respectively. The proposed merger would value the company at £767m.

Under the proposals, it looks likely that Capital Radio chief executive David Mansfield and GWR executive chairman Ralph Bernard would take similar roles in a combined company, which would be the UK's biggest radio firm.

The discussions have gone down well with analysts. In a research note, Numis analyst Lorna Tilbian said: "We have repeatedly stated our enthusiasm for this combination, which in our view would be the radio equivalent of Carlton/Granada. This would create a major radio network with real scale."

Merger plans are likely to hit advertisers the hardest. As companies become larger through mergers, pricing will be controlled by a limited number of people who would be able to hike up ad rates.

Capital and GWR would own a 40% stake in the national radio advertising market if the merger goes ahead.

Advertiser body ISBA that it was studying the plans. It said the merger represented was a "significant market share in radio", which is an important strategic medium for advertisers.

The Office of Fair Trading would examine the group's 40% share and a referral to the Competition Commission will be undertaken before the merger can be approved.

If the merger does go ahead, then it could spur other radio stations into consolidation talks.

Emap, the next biggest commercial radio group outside of Capital and GWR, has already expressed an interest in upping its 27% stake in Scottish Radio Holdings by taking full control of the £320m company.

The deal would go through with relative ease because Emap does not own any radio stations in Scotland.

Emap has also recently appointed senior Ofcom executive Mike Philips to head its regulatory and public affairs, signalling the company is actively seeking to grow its radio empire.

The deregulated market will also be of interest to big players such as: SMG, which owns Virgin FM; Chrysalis which owns Heart FM; and The Wireless Group, which owns TalkSPORT.

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