CBS Radio’s best play is public markets

Provided exclusively by Mergermarket

CBS’ (NYSE: CBS) smartest move may be an IPO of its CBS Radio division, as opposed to the immediate sale of stations, either piecemeal or as a whole, industry sources told this news service.

A sale of the entire CBS radio unit at once might not bring the best return for shareholders, William Egge, managing director and Head of Technology, Media and Communications Banking at Citizens Bank, told this news service. “The thing is, you might not be maximizing your valuation by selling it together because you’re transferring the potential need to separate the different pieces,” he said, speaking generally about such deals.

Egge reasoned that an IPO would give the company time to sell off the stations in pieces, and do so “in an orderly fashion.”

A broadcast industry adviser said an IPO is likely to be CBS’s course of action, simply because of the paucity of potential buyers.

CBS CEO Leslie Moonves told a gathering at an investor conference on 15 March that the company was looking at potential alternatives for the unit, including a spinoff or sale. “Just as we did [when CBS spun off its outdoor advertising business two years ago], the aim here is to unlock value for our shareholders. There are a number of different options for doing this, and we’ll be looking at all of them,” Moonves said.

If CBS opts for a sale, it would be difficult to find a buyer for the entire unit, a broadcast industry adviser said. The portfolio includes 117 radio stations, many in the largest US markets, including New York, Los Angeles, Chicago, Philadelphia, Dallas-Fort Worth, Boston, Washington DC and San Francisco.

The broadcast adviser and a second broadcast adviser agreed that the only large radio company with the financial means and savvy to make a deal for even a significant number of the CBS stations – let alone the entire subsidiary – would be Entercom Communications (NYSE: ETM), owner of more than 120 stations across 27 US markets.

“It’s [Entercom CEO] David Field’s moment, if he wants to [do it],” the second adviser said. “He’s got a really nice company that’s kind of on auto-pilot. They never got too far ahead of themselves debtwise, so that it never became unmanageable. They’ve done some really smart things with how they’ve developed their brands, especially the sports brands they have.”

Though financing has been difficult throughout recent months, Egge pointed out that deals are still possible: “At the beginning of the year … things were impacted by the markets being in discovery mode. I think recently we’ve seen that beginning to improve.”

The first adviser said Entercom could make the deal, but added that it’s not clear whether Field would be willing to assume the debt required to make a deal that could cost as much as USD 3bn.

Meanwhile, the second adviser said, rival radio station operators iHeartMedia (OTCBB: IHRT) and Cumulus Media (NASDAQ: CMLS) are too encumbered with debt to consider a play for the CBS assets.

iHeart carries some USD 21.1bn in debt, and is currently fighting a default notice sent by a set of senior debtholders. Cumulus was carrying USD 2.45bn in total debt as of 31 December 2015. The company recently sold its corporate aircraft to help pay down the debt, and is scrambling to explore alternatives to further reduce its load.

A CBS spokesperson did not respond to a request for comment. Entercom CFO Steve Fisher declined to comment.

by David B. Wilkerson in Chicago and Jonathan Guilford in New York

As seen in the mergermarket newsletter on 15/04/2016



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