Fin 600_Radio One-Team 3_ Final Slides

8/19/2019 Fin 600_Radio One-Team 3_ Final Slides

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adio One Inc.-

An analysis of the proposed acquisitio

ns

TEAM 3Boyega AjayiInes ChenDamon Delorenzis

Jessica Jusuf Doreen Marcher


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Opportunity for Radio One as a result of divestures by Clear Channel Communications.

Potential acquisitions of 21 stations

hat is the ri!ht price"

Case Introduction


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#he consolidation trend in the radio station industry.

Reduced e$penses Increased prices for radio stations

%ivestiture by Clear Channel

&ac'!round


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(valuate the &roadcast Cash )lo*s +&C), of the tar!eted radio stations

%etermine and evaluate appropriate multiples that can be used to evaluate the potential acquisitions

%etermine an appropriate offer price for the tar

!eted radio stations

Obective of Analysis


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ultiples

◦ &roadcast Cash )lo* +&C),

◦ (arnin!s before Income #a$

◦ %epreciation and Amorti/ation +(&I#%A,

◦

After #a$ Cash )lo*s

%ecision Criteria


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%iscount Rate 0nlevered Cost of (quity

%iscounted cash flo*

Corporate aluation

◦ )orecast period

◦ ori/on alue

ultiple Analyses

ethodolo!y


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rsu3rR)4+RP,+5u,

amada (quation

%iscount ate -0nlevered Cost of (quity

PRM 7.2%rRF 6.28%

ßu 0.61

Average assetßi 0.75

Rs 10.71%


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%epreciation of property and equipment◦ 6trai!ht line depreciation for 17 years

Capital ($pense3 21 ne* operatin! 0nits 8 91::;::: each

3 92.1

Amorti/ation ($pense


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Incremental Corporate ($pense Adustm

ent

TotalBCF*1000s+ 101,548, 116,079 136,034, 158,249, 180,786 205,920

Total Cororate-.ense*1000s+ 6,000 6,000 6,900 7,935 9,125 10,494

BCF & /otent!alNe arets 59,014 65,041 76,436 89,711 101,966 115,277

BFC&Nearets TotalBCF 58)1' 56)0' 56)2' 56)7' 56)4' 56)0'

Cor -.ense (or/otent!al Nearets *1000s+ 3,487 3,362 3,877 4,498 5,147 5,875


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Net #or!n% Ca!tal *N#C+ ' o(BCF 47)90'

tead taterot$ 4)00'

#ACC 10)71'

Ta. Rate 34)00'

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6/Steady

State

= 1999 2000 2001 2002 2003 2004 2005Revenue to rot$ 8)22' 12)35' 12)56' 10)75' 9)89' 4)00'ross Revenue 120,486 130,384 146,488 164,891 182,609 200,676 208,703

!rect -.enses 15,094 16,243 18,176 20,432 22,624 24,857

Net Revenue 105,392 114,143 128,313 144,460 159,985 175,820

erat!n% -.enses 46,376 49,102 51,877 54,750 58,020 60,543 BCF 59,014 65,041 76,436 89,711 101,966 115,277 119,888

Cororate -.enses 3,487 3,362 3,877 4,498 5,147 5,875

-B:TA 55,527 61,679 72,559 85,213 96,819 109,402 erec!at!on and A;ort!alue 0 0 0 0 0 710,399

FCF?Ter;!nal >alue 36,648 40,708 72,450 83,550 90,982 809,358

Enterprise Value 669,705


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tead taterot$ 6)00'

#ACC 10)71'

Ta. Rate 34)00'


State

= 1999 2000 2001 2002 2003 2004 2005

Revenue to rot$ 8)22' 12)35' 12)56' 10)75' 9)89' 6)00'ross Revenue 120,486 130,384 146,488 164,891 182,609 200,676 212,717

!rect -.enses 15,094 16,243 18,176 20,432 22,624 24,857

Net Revenue 105,392 114,143 128,313 144,460 159,985 175,820

erat!n% -.enses 46,376 49,102 51,877 54,750 58,020 60,543 BCF 59,014 65,041 76,436 89,711 101,966 115,277 122,194

Cororate -.enses 3,487 3,362 3,877 4,498 5,147 5,875

-B:TA 55,527 61,679 72,559 85,213 96,819 109,402

erec!at!on and A;ort!alue 0 0 0 0 0 962,025

FCF?Ter;!nal >alue 36,648 40,708 72,450 83,550 90,982 1,060,984

Enterprise Value 806,391


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tead taterot$ 8)00'

#ACC 10)71'

Ta. Rate 34)00'


State

= 1999 2000 2001 2002 2003 2004 2005

Revenue to rot$ 8)22' 12)35' 12)56' 10)75' 9)89' 8)00'ross Revenue 120,486 130,384 146,488 164,891 182,609 200,676 216,730

!rect -.enses 15,094 16,243 18,176 20,432 22,624 24,857

Net Revenue 105,392 114,143 128,313 144,460 159,985 175,820

erat!n% -.enses 46,376 49,102 51,877 54,750 58,020 60,543 BCF 59,014 65,041 76,436 89,711 101,966 115,277 124,499

Cororate -.enses 3,487 3,362 3,877 4,498 5,147 5,875

-B:TA 55,527 61,679 72,559 85,213 96,819 109,402

erec!at!on and A;ort!alue 0 0 0 0 0 1,580,995

FCF?Ter;!nal >alue 36,648 40,708 72,450 83,550 90,982 1,679,954

Enterprise Value 1,142,621


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(nterprise value

Steady ro!th"ate

Enter#rise $alue%&&&s'

Scenario 1 4% 669705

Scenario 2 6% 806!91

Scenario ! 8% 1142621


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Enter#rise$alueMulti#le ofBC(

Enter#rise$alueMulti#le ofEBITDA

Enter#rise$alueMulti#le ofAfter)Ta* C(

Scenario 1 11)3 12)1 18)3

Scenario 2 13)7 14)5 22)0

Scenario ! 19)4 20)6 31)2

ultiple Analysis


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CA6( >1?

@i!!ins and oyster had to decide if adio

One should purchase the stations and ho*

much to offer

CASE +,-.hat #urchase #rice range that!ould ma/e sense 0


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#oo many factors ma'e it very difficult to assessan Acquisition proposal accurately

#he Cost of Capital for the tar!eted stations is anassumption that could be chan!ed

($penses such as corporate e$pense and net *or'in! capital are based on assumptions that the tar!eted radio stations *ill have ratios similar toRadio One

6tren!ths and ea'nesses


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As revealed by the ris' analysis; some of the stations may be overvalued

Radio One should acquire all 21 stations and *erecommend an offer not !reater than 21 $ &C)

#he mana!ement should capitali/e on their hi!h stoc' price *hen structurin! the acquisition of the 21 tar!eted radio stations

Conclusion ecommandation


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Fin 600_Radio One-Team 3_ Final Slides

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