It seems as though about every few weeks another major media company explores the option of privatization. Whereas private equity players see opportunity in old media, Wall Street just isn't putting much value in the high-cash-flow yet low-growth companies in radio, print and cable.
A quick recap: Emmis CEO Jeff Smulyan has pondered privatization and promised, after August talks fell through, that he would revisit the issue. A year ago Cumulus formed a private partnership with Bain Capital, Blackstone Group and Thomas H. Lee Partners to acquire Susquehanna Radio. Three weeks ago the Dolan family offered to buy 100% of Cablevision shares at $27 each. That follows privatization of the fifth-largest cable operator, Cox, and the ninth largest, Insight, which took themselves private in 2004.
Newspaper companies have also seen several high-profile properties slip into private hands. The Philadelphia Inquirer was purchased by Philadelphia Media Holdings, a private investor group led by former ad man Brian Tierney. In addition, both The Boston Globe and the Los Angeles Times have recently been the target of buyers who would like to take them away from their publicly owned parents.
The margins of old media are indeed attractive: Merrill Lynch estimated a private equity group could afford to offer up to $41 per share for Clear Channel and still manage returns of about 20%. Meanwhile, Wachovia analyst Marci Ryvicker wrote that she's not surprised by the most recent announcement that Clear Channel is pursuing strategic alternatives.
"[Clear Channel's] shares are down 20% since the announcement of its first share-repurchase plan (March 2004) and down 2% since the announcement of Less Is More (July 2004)," she advised analysts. "Meanwhile, the S&P 500 has risen 23% and 26%, respectively. It is understandable that management is frustrated with this underperformance and is looking to make changes that would reverse this trend."
And, of course, privatization talks do tend to spur the stock. Cablevision's stock, which was trading at less than $24 the day before the Dolans announced their plan, is now trading at $27.60. (Looks like they'll have to increase their bid.) Clear Channel's stock, meanwhile, jumped 9% on the news.