At least two radio analysts are happy about the Cumulus-Citadel merger.
Wells Fargo media stock analyst Marci Ryvicker gives the Cumulus-Citadel deal a thumbs up, writing in a note to customers that the merger agreement validates trading multiples of 8 to 10 times EBITDA (earnings before interest, taxes, depreciation and amortization) for broadcast stocks.
Terms of the final deal value Citadel at roughly $2.4 billion to $2.5 billion. “Based on management comments and investor expectations, Citadel was on target to produce $250 million in EBITDA in 2010,” writes Ryvicker. “Applying a 3% growth rate to this figure, it would be appropriate to assume that Citadel could generate roughly $258 million of EBITDA in 2011.”
Cumulus said in its announcement it expects to see some $50 million in cost savings from the deal. “We have heard the buy side assume anywhere between $20 million and $40 million in synergies — which would peg a deal multiple at 8.6-9x or 8.1-8.4x, respectively,” wrote Ryvicker.
Bishop Cheen, another Wells Fargo Securities, told the Atlanta Constitution it’s been nearly three years since there’s been meaningful merger and acquisition activity.
Moody’s Investors Service stated in a client note, “The radio broadcasting industry is mature and faces competition with Internet services such as Pandora and Mog, handheld devices and satellite radio. Radio broadcasters have been looking for growth through acquisitions.”
The Motley Fool is not rah-rah about the deal, writing that “Radio is dead” and that “Cumulus also plans to rearrange the deck chairs on the Titanic.” It warns investors to stay away from radio stocks, saying that the recession has changed the industry dramatically and “terrestrial radio will never be the same.”
— Leslie Stimson