Icasa, the broadcasting regulator, has blocked the R372-million takeover by New Africa Investments Ltd (Nail) of Kagiso Media to form a bigger black-run media group.
The news is a blow to Nail, whose new chief executive Saki Macozoma aspires to set up a strong black-owned group with a solid radio base.
Nail had applied for exemption from rules that limit media company control to two FM and two AM radio stations.
Those rules were originally aimed at spreading control of the airwaves to more black firms, but Nail has argued they prevent the emergence of heavyweight black-owned media groups.
The Independent Communications Authority of South Africa said Nail had not shown sufficient cause to warrant an exemption, and the regulator was concerned that there would be a reduction in the stake held by so-called empowerment entities.
Between them, Nail and Kagiso have stakes in five FM radio stations, and more than 25 percent of three - the Cape-based KFM, Pretoria-based Jacaranda and Durban's East Coast Radio.
Macozoma was unhappy about the news. "I am disappointed. We are awaiting detailed reasons why Icasa had turned down the application," he said.
Kagiso was also surprised, but said the news would not hit its growth.
Analysts expected Nail to restructure the deal, by selling its stake in one of the FM radio stations it controls. That could be East Coast Radio, which is the most mature of its stations, but has low growth potential.
Nail had argued that critical mass was needed to allow the emergence of a powerful black media group. But Icasa said it was concerned control of three big FM stations by a merged Nail/Kagiso could be a barrier to entry for other black groups. It was also worried about "the lack of any clear promises of performance" to transform the country's media landscape. - Reuters