Depending on when the buyout deal goes to closing, Bear Stearns analyst Victor Miller is telling clients that they can make an annualized return of 12.1-23.7% buying Cumulus Media stock at current prices. His calculations are based on a closing taking place between January 15 and May 15, 2008.
After studying the preliminary proxy filed this week (9/11/07 RBR #177), Miller found that the bid to take the company private worked out to a multiple of 12.1 times estimated 2007 EBITDA, and 11.4 times projected 2008 EBITDA. The proxy revealed that the Dickey family and their equity backer first offered 10.65 per share, which was rejected by the special committee of independent directors. That was raised to 11.25 and then to 11.75, the bid which was accepted. During a 45-day "go-shop" period, the special committee and its advisors contacted eight potential strategic buyers and 10 private equity shops, but only one signed a confidentiality agreement and no actual bid was ever received.
"We believe the financing is not subject to market conditions," Miller wrote, with units of Merrill Lynch committed to funding up to 1.02 billion of debt for the buyout, which is to be principally funded on the equity side by Merrill Lynch Global Private Equity. With a closing expected in early 2008, Miller calculates that someone who bought the stock this week at 10.86 (the Tuesday closing price) would make an annualized return of 23.7% if the closing takes place on January 15th, sliding down to 12.1% if the closing is on May 15th.