The Clear Channel:Jacor merger was not good for CBS on two different levels. cbs.marketwatch.com
First, CBS wanted Jacor. It is fast growing and it would have made a good fit in CBS' strategy. As it turns out, CBS didn't conceive the Infinity IPO fast enough to get Jacor. Now, I suppose, CBS may still go after CCU:Jacor combined but it likely will be more expensive and much more difficult to swallow from a regulatory and market cap perspective. I wouldnt be surprised at some serious shakeout in CBS management here. Reynolds, as the CFO, is on the hottest seat.
Merrill Lynch analyst Jessica Reif Cohen wrote in a research note that the deal marks a "good acquisition" for Clear Channel, which is buying "one of radio's best-managed and fastest-growing companies."
The deal will be "immediately accretive" to after-tax cash flow to the tune of 1 cent to 3 cents on 1999 earnings on a full-year pro-forma basis, Cohen said.
Second, the deal has negative implications for CBS' IPO from a value standpoint. CCU effectively paid Jacor only a 13.5 price to cashflow multiple for its shares. Thats good for CCU but bad for comparable industry valuations. The Infinity IPO, in anything close to the current market environment, might not be able to get more than 15X 99 cashflow. This price might mean that CBS waits to float the 20%. The problem with that is that Mel's acquisitive hands would be tied that much longer. I think the question of when is a huge matter of debate right now at Blackrock. I think they have to push through, maybe only sell 10%, but get it done. If they do go through with it, someone will be paying a very nice (low) price to own those shares. It likely will be an investment bank rather than the investing public.
The estimated purchase price of 13.5 times 1999 broadcast cash flow, Cohen wrote, is a "tremendous value for CCU given the high-growth characteristics of Jacor's radio-station portfolio."
Bottom line: 1. There is good reason to believe there is dissension in the upper management ranks at CBS right now. There should be. They were sleeping at the switch regarding the Infinity idea.
2. CBS is very much undervalued at any price under 25. |
