It’s no secret that Entercom Communications shares are way below where anyone thought they would be, with ratings and revenue disappointments in key markets compounded by COVID-19 advertising downturns. To protect itself from a possible hostile takeover bid, Entercom’s board in late April gave an affirmative nod to a “limited duration shareholder rights plan.”
Now, the board at the nation’s No. 1 audio media company by radio station count has taken a similar course of action.
The iHeartMedia board of directors on Wednesday signed off on the adoption of a short-term stockholder rights plan.
The reason is plain and simple: iHeart says it made the move “in order to protect the best interests of all iHeartMedia stockholders during the current period of high equity-market volatility and price disruption.”
While Entercom shares are extremely depressed, trading at $1.09 in midday trading on Thursday — a 75.7% decline from where shares were Feb. 25 and a 83.3% dip from where ETM was one year ago.
It’s a bit of a different scenario at iHeart, and the board’s move suggests it would rather not deviate from any possible business transactions unless it involves John Malone and Liberty Media Corp.
In a statement released late Wednesday, iHeart explains that its board adopted the rights plan at this time “due to the unprecedented impact of the COVID-19 pandemic on equity market valuations; the complex nature of the company’s capital structure; to enable all of iHeartMedia’s stockholders to realize the full potential of their investment in the company in light of the inherent resilience of the company’s cash flow model and patient capital structure; and to protect the interests of iHeartMedia and its stockholders by deterring any entity, person or group from attempting opportunistically to gain undue influence over or control of iHeartMedia through open market accumulation or other tactics without paying an appropriate control premium.”
The latter scenario is exactly what happened with TEGNA, as Soohyung Kim-led Standard General took a stake in the broadcast TV company and then attempted, unsuccessfully, to gain influence in its business affairs through board seat nominations.
“The rights plan is designed to ensure the fair treatment of the company’s stockholders, and to provide the Board and stockholders with the appropriate time to make informed decisions that are in the best interests of iHeartMedia and its stockholders during this period of high market volatility and price disruption,” iHeart continued.
Importantly, iHeart says the rights plan “is not intended to deter iHeartMedia from considering any offers that are fair and otherwise in the best interests of the company and its stockholders.”
This likely refers to the ongoing chatter regarding Liberty Media, and a scenario that would make iHeartMedia cousins to Pandora and Sirius XM.
The rights plan “is similar to rights plans adopted by other publicly traded companies.”
Pursuant to the plan, the iHeart board declared a dividend distribution of one right on each outstanding share of iHeartMedia’s Class A common stock, share of Class B common stock and warrant issued in connection with iHeart’s plan of reorganization.
The record date for such dividend distribution is Monday, May 18.
Subject to certain exceptions, the rights will generally be exercisable only if, in a transaction not approved by the board, a person or group acquires beneficial ownership of 10% or more of iHeart’s Class A common stock (or 20% in the case of certain passive investors), including through such person’s ownership of the convertible Class B common stock and/or warrants, as further detailed in the rights plan.
In that situation, each holder of a right (other than the acquiring person or group) will have the right to purchase, upon payment of the exercise price, a number of shares of iHeartMedia’s Class A common stock, Class B common stock or warrants, as applicable, having a market value of twice such price.
In addition, the Rights Plan contains a similar provision if the company is acquired in a merger or other business combination after an acquiring person acquires beneficial ownership of 10% or more of iHeartMedia’s Class A common stock (or 20% in the case of certain passive investors).
The rights plan has a duration of less than one year, expiring on May 5, 2021.
But, the rights plan may be terminated, or the rights may be redeemed, prior to the scheduled expiration date under certain circumstances, including if the iHeart board determines that market and other conditions warrant, which the board intends to monitor.
While iHeart shares are valued at a higher price than those of Entercom, the percentage decline seen throughout the COVID-19 pandemic is indeed stark.
On Feb. 18, IHRT was priced at $17.85. As of 12:30pm Eastern Thursday, shares were priced at $7.04 — a 60.6% decline in value. Year-over-year, IHRT is off 54.4%, owing to growth seen between mid-December 2019 and mid-February 2020.
