A merger between Fairfax Radio and Macquarie Radio Network could be back on, amid suggestions the two companies could become part of an enlarged listed vehicle.
Sources said a "friendly merger" had been proposed in recent weeks whereby Fairfax (FXJ) would merge stations such as Melbourne's top rating 3AW and Sydney's 2UE into Macquarie Radio (MRN), which was already listed on the share market.
Under the scenario, Fairfax would spin out its holding in the combined group via an in specie demerger and distribution of the business into a new listed vehicle.
Banks working on the proposal believe the merger of the two companies would capture more than $10 million in synergies.
The biggest upside in terms of synergies would be the creation of a national sales proposition that could offer advertisers the No 1 talkback radio program in every city: a must-buy for many national advertisers.
Macquarie Radio owns 2GB, the home of popular broadcasters Alan Jones and Ray Hadley. It is listed on the ASX and was capitalised at $78m at close of trade on Friday. It is majority-owned by adman John Singleton, who has a 71.15% stake.
The jewel in the crown of Fairfax's Radio business is Melbourne's 3AW. The company also owns Perth's successful 6PR, and Brisbane's 4BC.
Morgan Stanley ran the numbers on a potential sale of Fairfax Radio in August and attached a stand-alone value of $167m to $297m.
Bankers working on the deal believe a friendly merger would create upside without potential conflicts between some of the big personalities involved on the management side of both companies.
Sources have claimed there has been a certain amount of bad feeling between some executives at the two companies in the wake of an aborted deal two years ago.
In October 2011, Fairfax abandoned a planned $220m sale of its radio division despite attracting an offer from Singleton's Macquarie Radio.
Fairfax has come under pressure to offload the radio division in the past from its largest shareholder, Gina Rinehart's Hancock Prospecting.
The mining magnate is friends with Singleton, and has previously let it be known that she considers the radio division to be a non-core asset alongside Fairfax's main publishing business.
In December, it emerged that Singleton had teamed up with Macquarie Radio colleague and investment banker Mark Carnegie to form Gutenberg Investments Unit Trust.
The trust acquired a tiny stake in Fairfax, and "agreed to consult" with Mrs Rinehart's Hancock. Gutenberg said in a statement at the time it had bought shares in Fairfax after the board closed the door on a sale or joint venture of the Fairfax radio assets to Macquarie Radio.
But since the announcement almost a year ago, Gutenberg has remained silent.
Under current ownership rules, no more than two commercial broadcast licences in the same area can be controlled by one owner.
This would mean that the enlarged radio group would need to offload a station in the Sydney market where it would operate Fairfax's 2UE, Macquarie's 2GB and over-50s station 2CH.
However, the media regulation rules are expected to be overhauled in the next 12 to 24 months under the Coalition government.
Analysts have been very bullish on the prospects for the radio sector.
"We forecast metro radio to continue its improved revenue performance into the second half of 2013," Citi equities analyst Justin Diddams said recently.
The last major corporate activity in the metropolitan radio sector occurred just over a year ago, when businessman Lachlan Murdoch took full control of DMG Radio Australia in a deal worth more than $100m.
Since the DMG deal, there has been interest in debt-burdened Southern Cross's Austereo.