Capital Radio and GWR have agreed the terms of their widely expected all-share merger, creating a UK commercial radio group with a combined market capitalisation of more than £700 million (€1.02 billion).

The deal combines the commercial London radio station Capital Radio with GWR's Classic FM and a number of analogue and digital stations that together reach about 36 per cent of the UK's commercial radio audience.

Based on the current issued share capital of the two companies, Capital Radio shareholders will hold 52 per cent and GWR shareholders will hold 48 per cent of the share capital of the merged group.

Capital Radio shareholders will retain their shares while GWR shareholders will receive new Capital Radio Shares in the ratio of 60.236 for 100 GWR shares.

Although the companies claim that the deal follows competition guidelines, it could yet face regulatory scrutiny and any developments will be closely followed by other radio groups seeking similar tie-ups.

Daily Mail and General Trust, the media group that owns 29.9 per cent of GWR, will retain 14 per cent share of the merged group.

The merger is expected to reap annualised pre-tax cost savings of at least £7.5 million in the second full year following its completion.

While the majority of these savings is expected to come from the unification of the groups' sales houses, further cost savings will be gleaned from head office, procurement and support services.