Radio One
| Radio One, Inc. |
Memo
To: Mr. Alfred Liggins III
From: Team 5
Date: [ November 22, 2011 ]
Re: Clear Channel Communications Inc. acquisitions
Mr. Liggins
The recent merger between Clear Channel Communications Inc. and AMFM has presented a rare opportunity for Radio One, Inc. The proposed divestiture of Clear Channel will be the largest in the history of the industry. Radio One, Inc. can acquire 12 established urban stations in the top 50 markets, which rarely become available. Market analyst have already speculated on the possible acquisition, causing Radio One’s stock price to rise from the mid-$40s to $97 a share! The trading multiple is at around 30x’s the forward BCF, which is substantially larger than the typical trading multiple for radio companies. If the acquisition of the 12 stations does not go through, there may be a negative reaction from the market, causing share prices to drop significantly.
We have reviewed the power ratios, which indicate how much of the total radio advertising dollars in a particular market is being captured by a particular station relative to its audience share. While many advertisers are still hesitant to pay as much for African-American listeners, the power ratios continue to rise each year. We believe this is due to the above average population and income growth for the African-American population. More advertisers are aware of the potential opportunity with advertising to Radio One’s demographic, and that is another benefit to the possible acquisition.
Consolidation of radio stations has caused an increase in the purchase price of radio stations in recent years. Stations in 1999 are selling for 18-20x BCF as opposed to 1990 when they would sell for 10-12x BCF. The increase in price should continue as advertisers recognize the benefits of TV-like reach with package deals by broadcasters. The average BCF for the radio industry is 18.1x, which would make the price of the acquisition at $1.38 billion. At a BCF
Memo
To: Mr. Alfred Liggins III
From: Team 5
Date: [ November 22, 2011 ]
Re: Clear Channel Communications Inc. acquisitions
Mr. Liggins
The recent merger between Clear Channel Communications Inc. and AMFM has presented a rare opportunity for Radio One, Inc. The proposed divestiture of Clear Channel will be the largest in the history of the industry. Radio One, Inc. can acquire 12 established urban stations in the top 50 markets, which rarely become available. Market analyst have already speculated on the possible acquisition, causing Radio One’s stock price to rise from the mid-$40s to $97 a share! The trading multiple is at around 30x’s the forward BCF, which is substantially larger than the typical trading multiple for radio companies. If the acquisition of the 12 stations does not go through, there may be a negative reaction from the market, causing share prices to drop significantly.
We have reviewed the power ratios, which indicate how much of the total radio advertising dollars in a particular market is being captured by a particular station relative to its audience share. While many advertisers are still hesitant to pay as much for African-American listeners, the power ratios continue to rise each year. We believe this is due to the above average population and income growth for the African-American population. More advertisers are aware of the potential opportunity with advertising to Radio One’s demographic, and that is another benefit to the possible acquisition.
Consolidation of radio stations has caused an increase in the purchase price of radio stations in recent years. Stations in 1999 are selling for 18-20x BCF as opposed to 1990 when they would sell for 10-12x BCF. The increase in price should continue as advertisers recognize the benefits of TV-like reach with package deals by broadcasters. The average BCF for the radio industry is 18.1x, which would make the price of the acquisition at $1.38 billion. At a BCF