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The Deal: Cumulus Reaches New Heights in Radio

NEW YORK ( TheStreet) -- The Friday leading into Labor Day is viewed by many companies as a good time to release bad news, as a way to get mistakes and misdeeds into the public record without generating interest from journalists far more concerned about their end-of-summer holiday. But just the opposite occurred Aug. 30, when Cumulus Media (CMLS - Get Report) announced a remarkably good deal worthy of much more attention than it received.

Most overlooked about this three-company transaction were terms that allow radio broadcaster Cumulus to buy radio-content producer Dial Global Inc. for 3.9 times trailing Ebitda. That's a bargain price, to be sure, made possible in part by Dial Global's motivated sellers, Gores Group and Oaktree Capital Management.

The sellers were so anxious to offload Dial Global that, after a recent restructuring, they accepted a distressed price of $260 million -- an amount Dial Global acknowledged as "insufficient to repay all of the company's indebtedness and the liquidation preference on all of the company's outstanding preferred stock." The price did, however, deliver $45 million to Dial Global's equity holders while also retiring $215 million in debt.

As a buyer, though, Atlanta-based Cumulus benefited from more than just the sellers' loss. In August 2011, New York-based Dial Global acquired Westwood One Inc., which was then network radio's premium content provider of news, information, talk, music and entertainment programming. Dial Global and Westwood One together have continued to emphasize radio content, amassing what Macquarie Capital (USA) Inc. analyst Amy Yong called "a rich portfolio of proprietary sports and talk content locked up in long-term agreements, including the NFL, CBS through 2017, NCAA, Dennis Miller, John Tesh, among others."

It's a lineup that in many ways complements major Cumulus investments in CBS Sports Radio, traffic and the broadcaster's national NASH entertainment brand based on the country music lifestyle.

But in other ways the acquired lineup renders many of Cumulus' content investments redundant.

"Cumulus has an overlapping content contract that it can cancel by the end of 2014," a source familiar with the many nuances of the Cumulus-Dial Global transaction said. This overlap promises to be "so duplicative," the source continued, that Cumulus is claiming synergies from the combination of $40.5 million.
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