Virgin Radio will list on the stock market as a separate business. It is unclear how much of a share SMG intends to retain, but it will direct the money it gets from the IPO to paying down its £150m debt.
The current value of Virgin on SMG's books is £105m, which the company today wrote down from £163.8m. It acquired the station as part of Chris Evans' Ginger Media for £225m in 2000. Evans had bought it from Richard Branson, who launched the station in 1993.
Virgin Radio licences the Virgin brand from Branson and the agreement has a clause allowing Branson to revoke the brand if there is a change in control of the station. However, it is understood an IPO would not trigger this clause.
SMG hopes that investors will pay a premium for Virgin's attractive brand and its strength in digital broadcasting, sponsorship and promotions. Virgin's first quarter revenues were up 8% on last year.
SMG also said it still intends to sell off cinema advertising business Pearl & Dean, but has terminated the Primesight auction indefinitely. This is because it believes bidders have come in low due to SMG's weak financial position, although bids matched market expectations of £60m; it intends to restart the auction once its position has improved.
Unveiling the break-up strategy at SMG's results meeting today, chairman Richard Findlay criticised the company's former policy of diversification.
He said: "SMG has underperformed in the UK media sector for some time. It has had a weak strategy weakly executed; leading to excess debt, a lack of focus, instability in the leadership, dissatisfaction among the shareholders and poor staff morale."
The company's results show 2006 pre-tax profits were £10m, down 50% on 2005, and revenues were £147.3m, down 8% on 2005.
TV revenues fell 8% to £125.6m; radio revenues fell 3% to £21.7m; Pearl & Dean's revenues fell 31% to £20.6m; but Primesight's revenues rose 13% to £23.3m.
SMG has written down the value of Virgin Radio from £163.8m to £105m, and that of Pearl & Dean from £18m to nil.
It also decided not to pay a final dividend for 2006 due to pressure on its balance sheet, leaving shareholders with a dividend of 1.2p compared to 2.9p in 2005.
The company's share price this morning climbed by 0.78% to 64.75p.
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