November 16, 1998
Offerings in the Offing
What's the Frequency, Mel?
Infinity IPO's reception should be static-free
By SCOTT REEVES
Infinity Broadcasting is a variation on a currently popular theme: A big-name company in an
established field with proven management and profits can complete its deal in a tough market for
initial public offerings. Conoco (Offerings in the Offing, October 19), MONY Group (November
2) and Fox Entertainment (November 9) recently struck these notes and launched successful IPOs.
Internet stock mania, which had been in remission since Broadcast.com's rousing debut last July,
erupted anew, helping Earthweb to shoot up to 69 1/4 by Thursday's close, far above its opening
trade of 40 the previous day and its IPO price of $14 a share. Infinity won't perform like an
Internet hotshot, but it offers what investors have been craving: steady growth.
Infinity Broadcasting owns 161 AM and FM stations in 34 markets. Through a wholly-owned
subsidiary, TDI Worldwide, it also operates one of the largest outdoor advertising companies in
the U.S. and concentrates on major metropolitan markets. Based on projected 1998 revenues,
Infinity is the second-largest broadcaster in the U.S with $1.7 billion, trailing Chancellor
Media/Capstar's $1.8 billion but ahead of Clear Channel/Jacor's $1.2 billion, says Thom Moon,
director of operations at Duncan's American Radio, an industry research and analysis firm based in
Cincinnati. Chancellor and Capstar have agreed to merge, while Clear Channel and Jacor have
merged.
Infinity is home to two of the biggest names in radio: nationally syndicated Don Imus, who serves
up an intriguing mix of blather, sharp political parodies and insightful newsmaker interviews, and
Howard Stern, the perpetual adolescent who proclaims himself the "King of All Media." In 1997,
Duncan's American Radio reports, Infinity had six of the nation's top 10 billing stations: WFAN in
New York, sports and home to Imus; WXRK-FM in New York, alternative rock and Stern; WINS
in New York, all news; WCBS-FM in New York, oldies; KRTH-FM in Los Angeles, oldies; and
KYW in Philadelphia, all news. Infinity concentrates on major markets, but also owns seven
stations in Fresno, California, the largest city between Sacramento and Los Angeles. For the nine
months ended September 30, Infinity reported pro forma net of $155.7 million on revenues of
$1.49 billion.
Until the 1990s, federal regulations prevented consolidation in the radio industry. In 1992, the
Federal Communications Commission allowed radio companies to own up to four stations in each
market, including two AM and two FM, and up to 36 stations nationwide, which was raised to 40
in 1994. The Telecommunications Act of 1996 created the industry as it now exists by eliminating
national limits but holding ownership to eight stations in a single market.
Michael Werner and Gerald Carrus founded Infinity Broadcasting in 1973, but owned only three
stations until Mel Karmazin signed on in 1981 and later began buying stations. Karmazin also
secured broadcast rights to major sports teams, including the Dallas Cowboys and the New York
Giants, Jets, Knicks, Mets and Rangers. Infinity went public in 1986, but Karmazin, Werner and
Carrus took it private in 1988 via a leveraged buyout. In 1996, Westinghouse Electric, which had
acquired CBS in 1995, bought Infinity. Karmazin became the largest individual stockholder in
what's now CBS, and will become CEO after the early retirement of Michael H. Jordan. After the
IPO, CBS will own about 83.9% of the equity and through the Class B shares will control about
96.3% of the voting power.
In a deal led by Merrill Lynch, Infinity next month plans to offer 135 million shares, including
20.25 million to overseas investors. A price range of $19-$22 a share was set, for a total of $2.6
billion-$3 billion, which would make it one of the five biggest IPOs on record. Net proceeds will
be used to repay a note held by CBS and for general purposes. The proposed New York Stock
Exchange symbol is INF.
Francis Gaskins, editor of Gaskins IPO Desktop in Los Angeles, says the deal is likely to come to
market at about eight times revenues, above nearest competitor Clear Channel which trades at about
six, and at about six times book value in an industry where competitors cluster at about three. "It's
priced at the top of the range, but Infinity is a profitable market leader," he says. "It has a
leadership premium, and that's okay."
Paradoxically, the ad load that plumps Infinity's bottom line might be a concern for investors.
Radio's endless ads and homogenized format make it difficult to attract new listeners. This may
have sparked a number of "pirate" or unlicensed radio stations, which are routinely shut down by
the FCC, but may underscore a growing dissatisfaction with commercial radio. A more significant
challenge may come from Internet broadcasters that can segment the market more narrowly than
over-the-air broadcasters and, with their lower costs, still turn a buck. For now, Infinity can pile
the ads high and the profits higher.
Infinity Broadcasting will be a steady performer. Look for the IPO to open strongly but without
fireworks and to value quickly. Infinity is a proven company in an established field and looks like
a buy and hold. |
