Richard Branson’s Virgin Group has begun talks with the preferred bidder of SMG-owned Virgin Radio as concerns mount over whether Absolute Radio should be allowed to use the Virgin Radio brand.

As part of its agreement with SMG, Virgin Group has the right not to allow the brand to fall into the hands of anyone who competes with Virgin businesses anywhere in the world.

However, a competition issue has already emerged. Virgin Group has a joint radio venture with the Hindustan Times, where it uses the Virgin Radio brand. One of Absolute’s backers is The Times of India’s owner Bennett Coleman, which owns radio stations in India.

Virgin Group is understood to be concerned whether it is too confusing for two Indian businesses to have a relationship with Virgin Radio.

One source said that the groups were this week in active discussions and a decision could be reached as early as next week.

Absolute, which is understood to have bid about £65 million for Virgin Radio, is unlikely to want to acquire the Virgin Radio license without being able to use the brand. Building a new brand would be costly and high risk, and a new brand is unlikely to be as strong as Virgin.

The Virgin Radio sale has attracted potential bidders because of the strength of the brand and the ability to extend it through events. Absolute currently owns Jack FM in Oxfordshire and is keen to own a brand with national appeal.

SMG is selling Virgin Radio so it can concentrate on its television businesses,which includes STV in Scotland and Ginger Productions. SMG acquired the radio business alongside Ginger Productions from Chris Evans in 2000 for £225 million.

Other parties that expressed interest in the radio business include Malaysian group Astro Networks and Northern Irish broadcaster UTV. Guardian Media Group and private equity groups Vitruvian Partners considered approaches but chose not to bid on the grounds that SMG was commanding too high a price tag.

Absolute Radio is led by chief executive Donnach O'Driscoll, who spent two years as head of international development at Capital Radio. Landmark Developments is the main shareholder of Absolute Radio.

An acquisition of Virgin Radio by Absolute would see yet another radio business enter private hands. Last week, private radio group Global Radio agreed to acquire GCap, Britain’s largest commercial radio group.

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