Disney Radio Could Be Next Acquisition

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NEW YORK ( -- Cumulus Media has acquired for $1.2 billion the radio assets of Susquehanna Media via a private partnership that may eye Disney’s radio assets next.

For Cumulus, which is heavily concentrated in small- to midsize markets, the deal will significantly increase its size in larger markets as Susquehanna owns stations in San Francisco, Dallas, Houston and Atlanta -- the fourth, fifth, seventh and 10th largest markets. While Cumulus is the second-largest radio operator in the U.S. based on station count, it trails revenue leaders Clear Channel Radio and Infinity Broadcasting by significant margins.

Dependent on local ads
Owning more stations in the top 25 markets could help Cumulus increase its take of national advertising dollars. At the moment, 87% of its revenues come from local advertising while most other radio groups count an 80-20 national-to-local advertising ratio. And Cumulus has been especially hurt as of late as its largest national advertiser, Home Depot, moved much of its radio money from spot radio to network radio, Cumulus CEO Lew Dickey noted during the company’s second-quarter earnings call today.

To buy Susquehanna Pfaltzgraff’s radio business, composed of 33 stations (an East Coast-concentrated cable TV distribution system with 230,000 subscribers went to Comcast for $775 million), Cumulus formed a private partnership with Bain Capital, Blackstone Group and Thomas H. Lee Partners. The sale is expected to be completed in the first half of 2006.

The four companies will each boast an equal share of the new partnership, called Cumulus Media Partners; Cumulus will provide day-to-day management and has an option to increase its stake to 40%, based on meeting undisclosed incentives.

A play for Disney radio?
The private partnership could also make a run for Walt Disney Co.’s radio assets, which are highly valued thanks to their concentration in large markets and their efficient, high-return reputation. Jeff Smulyan, CEO of Emmis Communications, has made public his desire for the assets and others rumored to be in the running are Entercom and Citadel. Most expect Disney to try to execute a tax-efficient reverse Morris trust, in which the company would sell the radio assets but maintain a 50% stake in the new company. A reverse Morris trust may be more easily executed with a privately held company like Cumulus Media Partners than with a publicly traded company.

“We’ll look at all opportunities and evaluate all opportunities that come before us and do what we can to maximize value for our shareholders,” Mr. Dickey told investors this morning. “I wouldn’t say anything is on or off the table.”

Disney deal eyed
There had been much talk -- even before a Susquehanna buyer was announced -- about the overlap Susquehanna has with Disney in key markets such as Atlanta, Dallas and San Francisco. Mr. Dickey noted combining assets would make a lot for whoever ended up buying Susquehanna. He added, noncommittally: “We’ve got a good group of investors that certainly have the wherewithal and want to look at all these opportunities.”

To be sure, radio has been a popular sector within the private equity world, because private companies don’t have to worry about the public perspective. Despite its high cash-flow nature, radio is not considered a hot media sector by Wall Street.

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