Consolidation of DMG Radio Australia into GWR Group plc

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Tuesday 13 June 2000

Introduction
DMGT announces that it has entered into an agreement to consolidate substantially all of DMG Radio Australia's UK radio operations, its Hungarian radio interests and 25 per cent. of its Australian radio operations into GWR.

As consideration, amounting up to £146 million, GWR will:
(a) issue 12,306,410 million new GWR shares valued at approximately £96 million based on the GWR share price at close of business on 12th June, 2000 of 777.5 pence;
(b) issue £48.5 million nominal value of Convertible Loan Notes (convertible into 5,527,066 million GWR shares at a conversion price of 877.5 pence per GWR share); and
© pay £1.5 million in cash.

GWR also has a three year option to acquire the remaining 75 per cent. of DMGT's Australian operations.

As a result of the new GWR shares to be received, DMGT will increase its stake from its current 18.8 per cent. to 26.9 per cent. of GWR's issued share capital. DMGT currently intends to retain the new GWR shares it receives as a result of the proposed transaction for the foreseeable future.

Assuming full conversion of the Convertible Loan Notes, DMGT's stake in GWR would increase to approximately 29.99 per cent.

Peter Williams, Finance Director of DMGT, who is closely involved in the development of DMGT's new media business, will join the Board of GWR as a non-executive director. This will be in addition to Roger Gilbert, who also represents DMGT and is Deputy Chairman of GWR.

GWR has also committed, for a period of two years, to ensure that DMGT can participate in future non pre-emptive equity issues for cash (including vendor placings) pro rata to its shareholding (on a fully diluted basis) at that time, up to a maximum of 25 per cent. of any such issues or placings.

Completion is conditional, inter alia, on approval by GWR shareholders.

In addition, GWR has also acquired from DMGT a further 19.5 per cent. economic interest in London News Radio Limited ("LNR") for an additional cash consideration of £5 million. Co-operation with GWR

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As announced by GWR alongside its preliminary results on 26th May, 2000, DMGT and GWR have identified a number of areas in which commercial advantages can be gained from co-operation.

DMGT and GWR have agreed to discuss collaboration on the development of local portal internet sites in areas in which GWR has local radio stations and DMGT has local newspapers, using the combined content, promotion and advertising sales strength of the two organisations. DMGT and GWR will also look at ways of leveraging the readership of Associated Newspapers (the Daily Mail and The Mail on Sunday having a combined readership of almost 8.8 million people per week) and the listenership of Classic FM (with 6.3 million listeners a week) in the new media environment.

Across the existing businesses, joint initiatives are being planned to develop cross marketing and listener/readership promotion opportunities between:

- Classic FM and Daily Mail and The Mail on Sunday;
- Northcliffe Newspapers and GWR's local radio stations; and
- LNR and Evening Standard and Metro.

In addition, GWR and DMGT are considering the relaunch, by December 2000, of DMGT's cable television channel, The Performance Channel, as Classic FM TV.

Background to and reasons for the consolidation of DMG Radio Australia into GWR
DMGT has achieved considerable success in developing its radio operations over the course of the last 6 years through a combination of organic growth and acquisition. In addition, DMGT has been an active shareholder in GWR, with a near 19 per cent. interest, for over 15 years.

DMGT continues to be committed to participating in the future of the radio industry. However, it recognises that its own radio operations would be of greater value as part of a larger, more focused, commercial radio company.

DMGT intends to continue to be an active shareholder in GWR and believes the addition of Peter Williams to the GWR Board will strengthen the relationship between DMGT and GWR and further enhances the opportunities for co-operation within DMGT and GWR's related business areas.

Information on DMG Radio Australia
In the UK, DMG Radio Australia currently operates stations in the East of England and around the outskirts of London, namely Essex FM, Breeze 1359/1431, Ten 17 FM, Mercury FM (96.6), Vibe FM, Mercury FM (102.7), Breeze 1521 AM and Mercury FM (101.6). These stations have a combined TSA of 3.9 million people and a reach of just under 1 million. DMG Radio Australia also has minority interests in Mansfield 103.2, Centre FM, 107.2 The Eagle and Medway FM. Under the proposed arrangement a controlling 50.01 per cent. shareholding in the company which holds the Vibe FM licence will remain with DMGT.

In Australia, DMG Radio Australia is one of the leading radio operators with a portfolio of 59 radio licences, including the newly acquired Sydney licence and 5AA in Adelaide. The other radio licences are operational in 29 regional markets predominantly in Queensland, New South Wales and Western Australia. Together, these stations have a potential audience of 6.75 million listeners. In 23 of these regional markets DMG Radio Australia's regional stations are the only commercial radio stations in their broadcast areas. As such, they fulfil an important role in their local communities and thereby provide a valuable medium for both local and national advertisers.

DMG Radio Australia's principal interest in Hungary is a holding of 53 per cent. in Danubius, the operator of Hungary's leading national radio station. Hungary has a TSA population of over 8 million and Danubius reaches over 3.7 million adults weekly. It also has a minority holding in a new start up station broadcasting to Budapest, called Roxy Radio.

In the year ended 30th September, 1999, DMG Radio Australia (including 100 per cent. of the Australian operations) generated profit before interest and taxation of £4.8 million on revenues of £34.2 million. As at 30th September, 1999, DMG Radio Australia had net assets of £25.1 million. Principal terms and conditions

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The DMGT Group has entered into an Acquisition Agreement with GWR, which sets out the terms and conditions of the consolidation of DMG Radio Australia into GWR. The agreement is conditional on the approval of the acquisition and related matters by GWR shareholders, the approval of the Federal Treasurer of Australia (without the imposition of material conditions) and the admission to the Official List of the London Stock Exchange and to trading of the new GWR ordinary shares which will be issued as part of the consideration for the acquisition. The new GWR shares to be issued as consideration will be issued fully paid and will rank pari passu with the existing GWR ordinary shares excluding the right to receive the final dividend of GWR for the year ended 31st March, 2000.

Under the agreement, DMGT has given certain representations, warranties and specific indemnities to GWR about DMG Radio Australia.

The DMGT Group has undertaken not to compete with GWR in the radio broadcasting business and in certain activities connected with the radio business in the UK or Hungary. DMGT has agreed not to compete with GWR in these areas for five years and not to solicit certain employees of DMG Radio Australia for two years. DMGT is not restricted in any way in its internet activities, or in its ordinary course of business, or in the activities of Teletext Holdings and its subsidiary undertakings that are not sound-only radio broadcasting activities.

Principal terms of the Australian joint venture agreement
The DMGT Group has also (conditional on completion) entered into a joint venture agreement and a management advisory agreement with GWR relating to GWR's proposed 25 per cent. holding in DMG Radio Australia's Australian operations ('DMGRIPL').

The joint venture agreement provides for DMGT to appoint four directors and GWR to appoint two directors of DMGRIPL. There will also be a management advisory agreement between DMGRIPL and GWR, whereby GWR will make available certain management advisory services to DMGRIPL.

Each shareholder has agreed not to transfer any shares in DMGRIPL for one year following completion (other than intra-group or by mutual agreement). If DMGT wishes to sell such part of its majority holding which will take its holding below 50 per cent., it will have the right to require GWR to sell its own holding on the same terms; and GWR will have the right to require that it does so. GWR will have a call option ("Option") entitling it (subject to any requisite consent of ordinary shareholders or FIRB) to acquire the DMGT majority interest in DMGRIPL for three years following completion at a price being the higher of (i) the carrying value based on the price per share as GWR will pay for a 25 per cent. shareholding as part of the acquisition; and (ii) the fair value of that interest less a variable performance related discount determined according to the internal rate of return of DMGRIPL during the period following completion. If, within a period of one year after completion of its Option or an acquisition of an interest in DMGRIPL through pre-emption, GWR disposes of an interest in DMGRIPL to a third party or otherwise realises value from its interest in DMGRIPL in either case at a price exceeding the call price, GWR will pay a proportion of that excess to DMGT.

In the second and third years of the option period, if DMGT wishes to sell its interest to a third party, GWR will be entitled to pre-empt that disposal by exercising and, within a period of three months, completing the Option. If GWR has not exercised the Option by the end of that three year period, DMGT will have the option for a period of two years to acquire GWR's interest in DMGRIPL for a price being the higher of its fair value and GWR's carrying value during the period of its ownership.

The joint venture partners and their group companies will not compete with the business of DMGRIPL. Principal terms of the Convertible Loan Notes

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The Convertible Loan Notes will bear no interest and, if not converted, will be redeemed at par at the end of the three year period following their issue. The Convertible Loan Notes may be converted solely at the option of their holders in whole or in part at any time during such period. They will be subordinated and will not be listed.

The Convertible Loan Notes will be convertible into 5,527,066 million new GWR ordinary shares at the rate of one new GWR Share for every 877.5 pence nominal of Convertible Loan Note converted, subject to adjustment in certain circumstances. Based on the closing middle market price of GWR ordinary shares of 777.5 pence per share on 12th June, 2000, the conversion price of 877.5 pence per new ordinary share represents a premium of approximately 13 per cent.

The Convertible Loan Notes will be transferable. The purchaser has agreed to offer to redeem at par Convertible Loan Notes as it makes disposals for cash on the basis that it will offer to redeem at par Convertible Loan Notes equal to 67.5 per cent. of the first £20 million of net cash disposals (net of costs and tax) and 75 per cent. of the next £40 million of net cash disposals, should any such disposals occur. DMGT will be obliged to accept redemption offers of up to £13.5 million of Convertible Loan Notes made in the 93 days after completion.

Financial effects
Based on the net assets of DMG Radio Australia at 30th September, 1999 of £25.1 million and after adding back goodwill, previously written off against reserves, the unaudited net book gross gain is estimated to be in the region of £60 million. To the extent that the consideration is likely to be taken in the form of GWR shares, which will be equity accounted for, this gain will comprise mainly goodwill which will be unrealised and hence will not give rise to a reported gain.

Furthermore, in accordance with FRS 9, Accounting for Joint Ventures and Associates, the resulting net book gain to be reported by DMGT will be reduced pro rata by its equity share of the carrying amount of the acquired assets of DMG Radio Australia included in the balance sheet of GWR. This means that an estimated 26.9 per cent. to 29.99 per cent. of this net book gain will not be recognised by DMGT.

The estimated profit or loss on disposal, calculated on the above basis, has not been disclosed since it is not sufficiently certain to be capable of quantification. Once known and audited, however, any profit will be credited as an exceptional item on sale of businesses in the current financial year ending 1st October, 2000.

DMGT has been advised by Lazard on the consolidation of DMG Radio Australia into GWR.

Inquiries to:
DMGT
Peter Williams, Finance Director: 020 7938 6631
Charlie Cox, Chief Executive,

DMG Radio Australia
020 7938 6790

Lazard
Nicholas Shott: 020 7588 2721
Robert Constant 020 7588 2721

Lazard, which is regulated in the UK by the Securities and Futures Authority Limited, is acting exclusively for DMGT and no one else in connection with the proposed transaction and, accordingly, will not be responsible to anyone other than DMGT for providing the protections afforded to customers of Lazard, nor for providing advice in relation to the proposed transaction or any matter referred to herein.

Definitions
"Acquisition Agreement" the conditional agreement dated 13th June, 2000 between GWR and DMGT
"Convertible Loan Notes" means the £48.5 million nil coupon convertible loan notes due July 2003 convertible into new GWR shares at the rate of one new GWR share for 877.5 pence nominal value of convertible loan note
"DMG Radio Australia" DMGT's radio operations comprising Formchoose Limited and DMG Radio Australia (Hungary) Limited and their respective subsidiaries and minority holdings (but excluding a 50.01 per cent. controlling interest in Eastern Counties Radio) and a 25 per cent. holding in DMGRIPL.
"DMGRIPL" DMG Radio Australia Investments Pty Limited
"FIRB" the Foreign Investment Review Board of Australia
"Lazard" Lazard Brothers & Co., Limited
"London Stock Exchange" the London Stock Exchange PLC
"Official List" the Official List of the UKLA
"Option" the option for GWR to acquire the shareholding in DMGRIPL which it does not own following completion
"TSA" Total Survey Area, being the geographic area within which a radio station's audience is measured
"TSA Population" the number of persons aged 15 and over in the UK, 14 and over in Hungary and 10 and over in Australia
"UKLA" the UK Listing Authority, a division of the Financial Services Authority