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) 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.

Although these synergies exceed the $25.7 million in trailing EBITDA that Dial Global brings to Cumulus, the acquiring company deserves the benefit of the doubt. Two years ago, after all, its much bigger acquisition of Citadel Broadcasting Corp. promised cost synergies estimated to be $50 million. But this original estimate wound up being $15 million short.

The $66.2 million created by summing Dial Global's trailing EBITDA and estimated synergies for the current deal serves as the divisor that, when applied to the $260 million that Cumulus paid for Dial Media, gives the transaction its 3.9 multiple. And while that's a fine negotiating feat by itself, it becomes even more so on considering how Cumulus plans to pay for almost all of Dial Global.

Enter Townsquare Media, the Greenwich, Conn.-based radio broadcaster that has maintained a small-market focus even as Cumulus has gravitated toward larger markets. Townsquare's contribution to this deal consists of buying 53 Cumulus stations in 12 markets for $238 million and swapping 15 Cumulus stations in two small markets for five stations in Fresno, Calif.

Yet it seems Cumulus came out on top even here. The stations that Cumulus sold to Townsquare contributed 92% of the purchase price for Dial Global, whereas the EBITDA loss from selling the stations is projected to be only half the Ebitda gain that Cumulus obtains from its acquisition of Dial Global.

And the net result, certain to please regulators, is industry behemoth Clear Channel Communications isn't quite the 800-pound gorilla it used to be.

-- Written by Richard Morgan in New York

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