The Sunday Times has reported Montgomery is preparing a £300m bid and has lined up Rob Woodward, the former commercial director of Channel 4, as a candidate for chief executive.
SMG owns Virgin Radio, the Scottish TV and Grampian TV ITV licences, outdoor media company Primesight and cinema sales house Pearl & Dean. It is led by chief executive Andrew Flanagan and non-executive chairman Chris Masters.
Montgomery's investment vehicle Mecom has been buying SMG shares over a number of weeks. Its stake is believed to be below the 3% ceiling above which it must be disclosed to the market, but the Takeover Panel may ask the company to clarify its intentions.
Mecom recently acquired two German regional newspaper groups, Berliner Zeitung and Hamburger Morgenpost, but Montgomery has failed in previous bids for UK media assets, including the Telegraph Group, SMG's old newspaper business, the ITV Digital licence and Express Newspapers.
SMG this month reported a 46% increase in pre-tax profits for the year ending December 2005 to £20m from £13.7m, after revenue gains at Virgin Radio offset the increasing volatility in the advertising market.
An SMG spokesman had no comment to make.
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