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Cumulus Media stations could be targeted after likely IPO
- Underperforming ABC Radio stations could be available
- Leverage reductions at Cumulus, iHeart are key to radio industry investment and further consolidation
CBS Radio could wind up acquiring assets once it is spun off from parent CBS (NYSE: CBS), industry sources told this news service.
New York-based CBS has been considering various alternatives for its radio unit, and sector advisors believe CBS Radio’s smartest move would be an IPO given the paucity of likely buyers for the group, this news service reported on 15 April.
As a separate, publicly-traded company, CBS Radio would actually be in a strong position to acquire some of the large-market stations owned by rival Cumulus Media (NASDAQ: CMLS), two broadcast advisers and an industry banker said.
CBS Radio could be a platform for consolidation amid a broad sense that the radio sector lacks leadership, the industry banker agreed. This banker pointed to a conservative culture across incumbent radio operators that has seen them slow to adapt to an increasingly online world. A revitalized CBS Radio could be a catalyst for rethinking the sector’s core business model, this banker said.
Cumulus is facing a debt crisis, one that was largely created by its USD 2.4bn acquisition of Citadel Communications, a second broadcast adviser noted. Citadel owned 243 radio stations across the US. Its crown jewels were the 22 ABC Radio stations it had acquired from Disney (NYSE: DIS) in 2007. The ABC stations included outlets in such large markets as New York, Los Angeles, Chicago, San Francisco and Washington, D.C.
The problem for Citadel – which became Cumulus’ burden – was that many of the former ABC stations underperformed, the second broadcast adviser said. Citadel reported a USD 848m loss in the fourth quarter of 2007, and instituted a wave of layoffs in February 2008.
Cumulus has not been able to improve the situation at these large-market stations, the second adviser said, and as a result, they could be willing to part with a number of them.
CBS Radio, with its superior sales staff and management personnel, has a much better chance of turning the former ABC outlets around, the first adviser said.
iHeartMedia (OTCBB: IHRT), in contrast, has been having more success in its larger markets than its mid-sized markets, the second adviser said. Burdened by debt of USD 21.1bn, and struggling to fight a default notice from a group of senior debtholders, iHeart could see an advantage to parting with some of its mid-market stations, the second adviser explained.
A second banker pointed out that a key indicator for the industry going forward will be whether leverage ratios can come down across the board. This banker explained that with Cumulus at roughly 8x leverage and iHeart at roughly 12x leverage, there needs to be a significant period of normalization.
Further, the second banker explained, if ratios can be brought down closer to 4x after restructuring these two players, there will be significantly more equity capitalization across the industry and investment and consolidation can return to a more normal pace.
CBS declined to comment.
by David B. Wilkerson in Chicago and Jonathan Guilford in New York
As seen in the mergermarket newsletter on 13/05/2016