The Independent Radio and Television Commission (IRTC) hinted last month that it might have problems with Ulster Television's takeover of County Media but its decision not to approve the deal - and the reasons given - still came as a surprise.
IRTC chairman Mr Conor Maguire indicated last month that problems might arise because the sale would require the commission to breach its own guidelines which do not allow existing media groups an interest of more than 27 per cent in a radio licence.
Yesterday's decision made no direct reference to this obstacle and instead relied on section 6(2) of the Radio and Television Act 1988 which required the commission to take into account "the character, expertise and experience of an applicant".
The IRTC went on to say that it favoured strong local representation in the ownership structures of the local radio services and approving the UTV bid represented a fundamental shift in this policy.
The IRTC's decision not to rely merely on its current policy restricting investment by existing media organisations is surprising and might suggest that the commission is concerned it would be vulnerable to a legal challenge.
UTV is considered an existing Irish media organisation by the IRTC for several reasons, the main one being that it broadcasts into the Republic - albeit by default. In addition its signal is carried by cable networks - including Chorus in Cork - and it has a common shareholder with TV3 in the Canadian group, Canwest.
UTV would clearly take a different view - or else it would not have bid for 100 per cent of the Cork radio stations, and a legal challenge cannot be ruled out. UTV and County Sound would also appear to have been alert to the problem of local ownership as according to the IRTC they had "contended that sufficient safeguards exist within other contractual provisions and arrangement to protect the local ethos of the services".
This does not appear to have been sufficient for the IRTC, but the commission has been careful not to close the door entirely to UTV - possibly to deflect a legal challenge. It has indicated that it is reviewing its policy on ownership and changes could be made as early as April, when the commission meets again.
One obvious course of action for the Belfast-based media group is to explore with the IRTC how much of a locally held stake it would like to see retained. Based on the current shareholdings, the commission would not really be able to ask for anything more than 40 per cent to be held locally. To ask for more would be to clearly send a signal that investors based in Belfast are somehow less Irish or desirable than investors based in Dublin and Limerick.
The majority of the shares in County Media are held by individuals and organisations based outside Cork city and county. Delta Partners, which has 35 per cent of the group, describes itself as a "European venture capital company based in Ireland," and has headquarters in Dublin. Mr Alex McCarthy, who owns 24 per cent of the business, is a Limerick-based businessman.
Mr Jim O'Mahony - the former chief executive of agri-business group Golden Vale - and Mr Colm O'Conaill - the managing director - are both Corkmen and own 17 per cent and 24 per cent each.
Last night UTV was not commenting, saying that it wanted to first study the IRTC decision. It seems unlikely that UTV will walk away from what is its biggest strategic move to date.
Any plans based around taking a smaller stake that UTV might be considering would require the support of the selling shareholders. They would have to agree to remain on in a minority capacity which in turn would require them to forgo some of the £28.5 million (€36.2 million) that they stood to pocket. It would be surprising if they did not agree to do so as the IRTC decision would appear to indicate that the only other way for them to cash in on their investment is to find some Corkmen who are prepared to buy them out.
