RADIO ONE INC

M&A CASE STUDY

Pakshil 18020841025
Ishika 18020841058
Varsha 18020841088
Rishav 18020841126
Vatsal 18020841144
Yuven 18020841196
 CASE INTRODUCTION
 Radio One, the largest radio group targeting African – Americans in the country.
 Opportunity for Radio One to acquire 12 radio station, as a result of divestures by Clear Channel
Communications, Due to the merger of Clear Channel and Clear Inc.
 Company Introduction:-

1980 1987 1992&1993 1995 1996-1999

• Radio one Formed • Accquired WMMJ – • Four Station • Purchased WKYS-FM • Radio one Purchased
• Accquired WOL-AM ( FM($7.5 million) Acquired for $6.4 for $34 Million. WHTA and WAMJ FM in
march 1999.
Under $1 Million) • Targeting African- million • Formed separate • Details of Acquisition are
Americans company to purchase given in Exhibit 2.
WHTA-Fm( $5
Milion)
 CORPORATE STRATEGY AND PERFORMANCE
 Targeting African- American population because of faster population and income growth(Exhibit – 3).
 Radio one used Clustering Strategy .
 Cutting cost and Creating efficiencies.( Centralising Functions).
 Converting audience share ratings into advertising revenue.
 Power Ratio= Revenue Share/Audience Share
 Increased Power Ratio (Exhibit 4 and Exhibit 5)
 Issued IPO in May 1999 -> $81.7 Million in net Revenue ( Exhibit 6 and Exhibit 7
 BCF( Broadcasting Cash Flow) were the EBITDA.
 Radio Industry :

1990-1996 Attractive to Advertisers

• 1992 FCC relaxed Existing Rules to allow one • Network Sales
company to acquire more than 2 station. But • Consolidation Decreased expenses.
limiting it to 36 station.
• 1996 FCC removed limitation and allowed
Consolidation which offered Economies of
Scale for Radio Station.
CLEAR CHANNEL OPPORTUNITY

 In 1999, Clear Channel proposed to purchase AMFM Inc. , for $17.4 billion in stock and $6.1 billion in debt.
 Which led to divestitures of 100 station in 37 markets, where it overlapped with AMFM.
 Attractive deal for Radio One Inc. for entering new market by acquiring 12 of the 100 station which was in top50
African-American market.
 Rare Opportunity for Radio One Inc. , which would bring greater advertising revenue for the company.
 In addition Radio One, was also negotiating on 9 station form other companies.
 HOW MUCH THE COMPANY SHOULD BE WILLING TO PAY FOR THE STATIONS??(21 Stations)
 Liggins and Royster wanted Radio One’s offer price to be pre-emptive but not dilutive.
- Performance projections (Exhibit 9).
VALUATION
CALCULATION OF DISCOUNT RATE

(Rm-Rf) 7.2%
Rf 6.28%
ßu 0.61
Rs 10.71%
EXCEL WORKINGS
 STRENGTHS AND WEAKNESSES

 Too many factors make it very difficult to assess an

Acquisition proposal accurately

 The Cost of Capital for the targeted stations is an

assumption that could be changed

 Expenses such as corporate expense and net working

capital are based on assumptions that the targeted
radio stations will have ratios similar to Radio One
CONCLUSION & RECOMMENDATION

 As revealed by the risk analysis, some of the stations

may be overvalued

 Radio One should acquire all 21 stations and we

recommend an offer not greater than 21 x BCF

 The management should capitalize on their high

stock price when structuring the acquisition of the
21 targeted radio stations
 MULTIPLE ANALYSIS
Enterprise
Value Multiple
of BCF

Scenario 1 11.3
Scenario 2 13.7
Scenario 3 19.4
CONCLUSION

 Good growth opportunity as all 12 stations are in their target

market.
 Radio one should acquire all 21 stations as market is expecting a
deal.
 Offer price should not exceed 20.5xBCF.