From our first edition of Manager’s Business Report (MBR):
After suffering through a credit recession that began even before the advertising decline and national recession, broadcasters are finally enjoying an economic recovery. The first big post-recession station group sale has taken place, followed quickly by the second. And there’s even been a big media-related IPO. The question now is whether these have opened the floodgates, or will the improvement in the financing and trading markets come very slowly?
Bonneville International, the for-profit broadcast company owned by the Church of Jesus Christ of Latter Day Saints (Mormons) kicked it off with an agreement to sell 17 stations in Chicago, Washington, DC, St. Louis and Cincinnati for $505 million, which worked out to a price multiple of around eight times broadcast cash flow. The big surprise was the buyer. Not that Stan Hubbard’s family doesn’t have money – it has plenty – but until now Hubbard Broadcasting had been almost exclusively a television group owner, with radio only in its hometown market of Minneapolis-St. Paul.
“We’ve been in radio since 1923. During the last big wave of consolidation we were really restrained because we were investing in a business called USSB. So, it worked out, I think, to our benefit that we were unable to participate in the frenzy. Now we’re in a great position to expand selectively. These markets, these stations, this leadership team is the best in the business – so we thought it would be a good way to start,” said Hubbard Radio Chairman Ginny (Hubbard) Morris, who’ll now have a much larger portfolio of stations to oversee. Many employees may not see much of a change, though since Bonneville’s Bruce Reese is coming aboard as CEO of the Hubbard Radio group.
USSB, by the way, was the #3 satellite TV company, which was eventually bought out by DirecTV for $1.6 billion in 1999.
Cumulus Media CEO Lew Dickey had been talking publicly about 8X as the new multiple for radio deals, but none of consequence had really been done at that level until the Hubbard-Bonneville transaction. Lew quickly went into action and struck his own deal to roll up privately owned Cumulus Media Partners (CMP) into publicly traded Cumulus Media. It’s an all-stock deal with an announced multiple of 7.8 times CMP’s estimated 2001 station operating income. Including debt assumption, the total enterprise value of CMP is put at $740 million, which is quite a come down from the $1.2 billion price tag established in 2005 (the actual closing was in 2006) for the bulk of the CMP stations acquired from Susquehanna Media.
But wait, there’s more!
Even before the Hubbard-Bonneville sale was announced Dickey had an offer on the table to acquire Citadel Broadcasting for 8X in a cash and stock deal. The board of directors at Citadel turned him down flat, but some of the distressed debt investors who now own Citadel post-Chapter 11 put pressure on the board to stop resisting and head to the negotiating table. A quick and aggressive auction saw Dickey raise his bid a few dollars a share to top Entercom CEO David Field. So, Citadel, which was the amalgamation of the original Citadel, which Fortsmann Little took private in 2001 for $2 billion, and ABC Radio, when Citadel CEO Farid Suleman outbid Field at $2.7 billion in 2006, is now going for under $2.5 billion in cash, stock and debt assumption.
That, though, is the reality of the station-trading market in 2011. We calculated that the Bonneville stations going to Hubbard might have commanded about one and a quarter billion back in 2000, but that’s not what anyone would pay today.
So, what will people pay today? Or, perhaps more importantly, what will current owners sell for?
Also in play is Fisher Communications, although the offer from Huntingdon REIT of $315 million works out to well below 8X broadcast cash flow for the TV and radio stations, plus the valuable real estate known as Fisher Plaza. Rather than the $23.99 per share being offered by Huntingdon, Mario Gabelli, whose mutual funds own more than a quarter of Fisher, is talking $35-40.
Most publicly traded radio and TV group owners had been careful to assure Wall Street during the recession that they were not looking to make acquisitions, other than maybe an opportunistic fill-in, but rather were using their free cash flow to pay down debt and de-lever. But even that is changing. Journal Communications CEO Steve Smith stated on his most recent conference call with analysts that his company is now interested in buying TV in markets where it only had radio and radio in markets where it only has TV – and he didn’t rule out going into a new market if the right deal comes along. So Lew Dickey and David Field aren’t the only ones on the hunt.
But three done deals do not make a trend, particularly when one was between related companies. Brokers are hoping that the big market radio deals at around 8X (there’s not really been a new benchmark TV deal yet) will convince some potential sellers to lower their expectations and narrow the bid-ask gap that’s kept dealmaking to a trickle in recent years. And if that gap does narrow, we also wait to see whether lenders will step up with funding, since most potential buyers don’t have the credit rating of the Hubbard family.
One way to raise money, though, is to sell stock on Wall Street. The Nielsen Company successfully sold $2 billion of new stock and convertible bonds in the first big IPO of 2011 and the first post-recession media-related stock sale of any size. Internet radio company Pandora Media has now filed its own IPO, with plans to sell $100 million in stock, which is pretty much the minimum for a real Wall Street offering. No broadcasters have yet shown any signs of wanting to get into the IPO queue – indeed, the number of publicly traded broadcast companies shrank during the recession due to bankruptcy filings. Wall Street has been receptive to broadcasting company bond offerings in recent months, so it is not out of the question for someone to try a stock sale as well.
There’s more to come!
RBR-TVBR note: The second issue of MBR features the 6th Annual RBR-TVBR Financial Roundtable with our expert panelists providing illumination of the latest trends in M&A. You won’t find a more informed group: Bishop Cheen, Managing Director, Wells Fargo Securities; Kristin Allen, Managing Director, Credit Suisse; David Abraham, Managing Director, DAC Media Capital; and Drew Marcus, Managing Partner and Portfolio Manager, Sugarloaf Rock Capital.
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