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CBS Radio Sale Could Be Priced North of $3 Billion

Following word of a possible sale or spinoff of CBS Radio, as announced by CBS Corp. chairman and CEO Les Moonves at the company's March 15 Investor Day, there has been much speculation as to radio buyers potentially interested in legacy CBS Radio stations. A list of those buyers could include Alpha Media LLC, Bonneville International Corp., Entercom Communications Corp. and Hubbard Broadcasting Inc.

However, the low tax basis for CBS Radio stations and the lack of large-cap radio companies that could afford to take the group outright points some in the investment community to more likely scenarios of a tax-advantaged radio for TV swap or a complete spinoff of the business segment, similar to the 2014 spinoff of CBS Outdoor into OUTFRONT Media Inc.

CBS Radio consists of 117 stations (29 AM, 88 FM) with 76% in the top 25 rated markets. Based on our combined 2016 ad revenue and cash flow estimates for the station group of approximately $1.2 billion and $400 million, respectively, and applying the average 12-month trailing 6.7x radio deal multiple would imply a private market valuation of $2.70 billion.

However, given CBS Radio stations have a commanding local ad share in some of the top 25 markets, deal multiples are expected to be on the higher end of the scale, if CBS indeed looks to sell certain market clusters.

Based on a higher 7.0x and 8.0x cash flow multiple, a sale of CBS Radio's station group could yield $2.8 billion to $3.2 billion. That potential deal volume range would rank as the second-largest radio deal in the last 10 years behind the Bain Capital Partners LP and Clear Channel Communications (iHeartCommunications Inc.) leveraged buyout back on Nov. 16, 2006, although that was at a much larger 10.7x multiple.

In CBS Radio station sales over the past 10 years, the average deal multiple was 9.8x, including 73 stations at a little over $1 billion in deal volume. However, the last three deals since 2012 — including the sale of five stations to Palm Beach Broadcasting for $50 million; the 14-station swap with Beasley Broadcast Group Inc. valued at $150 million; and the sale of KFWB-AM to Universal Media Access for $8 million — have been between a 6.3x to 7.2x multiple, more in line with current radio station deal values.

Alpha Media, which recently completed its deal for Digity LLC's 116 stations and is now ranked as the 10th-largest radio group in terms of revenue, could be a buyer of CBS Radio market clusters in all but two markets, Chicago and San Francisco, where it is at the five-station cap for the FM band. Markets where it already has a presence and could scale up include Dallas-Ft. Worth and Washington, DC. Bonneville also could be an interested buyer, with CBS Radio market overlap in Los Angeles, Seattle-Tacoma and Phoenix without breaking the FCC cap.

Entercom has the greatest number of markets overlapping CBS Radio at seven, although it could still increase its scale in Atlanta, Boston, Miami-Ft. Lauderdale-Hollywood, Seattle-Tacoma and San Diego, Calif. The only markets where it is currently at the FCC cap are San Francisco and Sacramento, Calif., with five FM stations each. Hubbard Broadcasting is another rumored interested party, with none of its six markets overlapping CBS Radio currently at the FCC cap.

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