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Cumulus wants to nix the WLUP/WKQX deal

Just announced that Cumulus will continue to operate the Merlin stations...at least for now:

https://radioink.com/2018/02/01/cumulus-will-continue-running-merlin-stations-now/

Seems like a practical and logical decision to me.

This possibly extends Cumulus operation of the two stations through October 2018 according to the article linked above.
Cumulus will walk away if the original price is not lowered. Does anyone think Lew Dickey will use his dry powder to buy these stations as a base for a new company?
 
Does anyone think Lew Dickey will use his dry powder to buy these stations as a base for a new company?

It would be a way to blow a lot of money for a couple stations that don't make much money. That's how he got his company $2 billion in debt.
 
It would be a way to blow a lot of money for a couple stations that don't make much money. That's how he got his company $2 billion in debt.

What are these two stations really worth?
It amazes me that station prices have fallen as low as they have. I remember when the Dickey family's rimshot in Atlanta sold for $283M (the seed money for what became Cumulus)
Today, in market 3, two, full signal FMs aren't even worth $50M! I understand they're both losing money but geez....where are all the " turn-around specialists?"
Does anyone see a path for these two to return to profitability?
 
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If Hubbard comes in and makes Merlin a decent offer, why would Merlin turn that down?

I predict Hubbard will make an offer for both stations. They just entered into an agreement to acquire KPNT and KSHE in St. Louis to add to their existing cluster there. I could see them doing the same in the Windy City.
 
Good question.

If one uses an Income Approach method of valuation based on Cumulus' mediocre cash flow from these two stations, the conclusion of value would likely be far under $50 million. However, I contend a better operator (read: Hubbard) would be able to extract more cash flow.

Precedent transactions should be considered when trying to arrive at an estimate of fair value. One that quickly comes to mind - at least for me - is the recently closed sale of the former KSWD-FM in Los Angeles to Educational Media Foundation. EMF buys stations based on "stick value," not cash flow generation ability of an existing format. In that case, I believe EMF paid about $50 million. Granted, Chicagoland's economy isn't as wealthy and the region isn't as highly populated as the greater Los Angeles area, but if a station such as KSWD can fetch a stick value of around $50 million, I think a Class B stick in Chicago is worth maybe 40% to 50% that figure. (Bear in mind 100.3 MHz in L.A. is a grandfathered Class B with a power/HAAT combination closer to a Class C1 or Class C0 station.)

I think the "right" number probably isn't terribly far from the $50 million amount Merlin had been seeking. I would say a range of $42 million to $45 million. A good operator should be able to grow these stations to $8 million a year in annual EBITDA (combined) within a couple years of acquisition.
 
I believe EMF paid about $50 million. Granted, Chicagoland's economy isn't as wealthy and the region isn't as highly populated as the greater Los Angeles area, but if a station such as KSWD can fetch a stick value of around $50 million, I think a Class B stick in Chicago is worth maybe 40% to 50% that figure.

To clarify, EMF paid $53 million for THREE stations (including KSWD) and two translators.

A good operator should be able to grow these stations to $8 million a year in annual EBITDA (combined) within a couple years of acquisition.

Most likely by changing the heritage formats and replacing heritage staff, right? The reason these stations are underperforming is not because of ownership, but because of what's on the air.
 
I think the "right" number probably isn't terribly far from the $50 million amount Merlin had been seeking. I would say a range of $42 million to $45 million. A good operator should be able to grow these stations to $8 million a year in annual EBITDA (combined) within a couple years of acquisition.

Given the amount Cumulus has shelled out in LMA fees, one can understand why they balked at the $50m price tag. But without those two stations, what kind of cluster does Cumulus have in market #3? That's right... one FM and one dying AM. The fact Merlin has left the door open suggests the two sides still want to do business together.
 
The fact Merlin has left the door open suggests the two sides still want to do business together.

I agree and that's what I've been saying throughout this thread. As you said, Cumulus has already "shelled out" millions, which should still be counted towards whatever sale price they settle on.
 
Precedent transactions should be considered when trying to arrive at an estimate of fair value. One that quickly comes to mind - at least for me - is the recently closed sale of the former KSWD-FM in Los Angeles to Educational Media Foundation. EMF buys stations based on "stick value," not cash flow generation ability of an existing format. In that case, I believe EMF paid about $50 million. Granted, Chicagoland's economy isn't as wealthy and the region isn't as highly populated as the greater Los Angeles area, but if a station such as KSWD can fetch a stick value of around $50 million, I think a Class B stick in Chicago is worth maybe 40% to 50% that figure. (Bear in mind 100.3 MHz in L.A. is a grandfathered Class B with a power/HAAT combination closer to a Class C1 or Class C0 station.)

I think the "right" number probably isn't terribly far from the $50 million amount Merlin had been seeking. I would say a range of $42 million to $45 million. A good operator should be able to grow these stations to $8 million a year in annual EBITDA (combined) within a couple years of acquisition.

Big difference: KSWD is an inferior signal, with low power despite being on Mt Wilson. A better reference would be the recent KXOS and KPWR sales, putting a parity signal in LA at the $80 million level.

The two Chicago FMs are full facilities, as good as any others in the market.
 
There's more to valuation metric than meets the eye.



Big difference: KSWD is an inferior signal, with low power despite being on Mt Wilson. A better reference would be the recent KXOS and KPWR sales, putting a parity signal in LA at the $80 million level.

The two Chicago FMs are full facilities, as good as any others in the market.

Actually, the metric more buyers are using is the per-thousand population based on a station's 60dBu contour. I agree the two stations are on par with all other downtown FM's. However, to compare them to a LA full signal is still a bit of apples and oranges. Reach in LA by their Class C stations 60dBu contour is several million more than Chicago's B's. If you take a number, say $6/listener by 7 million population covered, then a basic stick value would be around $42M. Trailing cash flow then gets mixed into the calculation.

HOWEVER (I shout), the market for big stations is soft. Really soft. With Entercom still digesting CBS, and Hubbard digesting scraps, there are few other groups big enough to buy big stations for the time being. More over, the values of well cash flowing stations is now about 1/4 of that in 2007. Cases in point. When WLIT was absorbed into Evergreen from Viacom in that blockbuster deal 20 years ago, it was valued at around $200M. And when ClearChannel bought out Evergreen, the market valuation was something more than $1B. (You wonder why Iheart is on the verge of Chapter 11? Look no farther). Now, they'd barely make $40M on WLIT or $200M for the cluster.

Also, when WGN-AM was "sold" the first time before Trib went bankrupt, it's assigned value was also around $200M. In the yet to be completed Sinclair deal, it's reported valuation is now $52M. Keep in mind the property value of the 140 acre transmitter site in EGV has increased in value in the past 20 years too. Do the math...it's not pretty.

While I can see Cumulus's position, I don't agree with it necessarily. Economic conditions have improved in the past couple years. It's their managerial decisions, both under the Dickey's and, to some extent, Mary Bernner, which have led to their low economic performance. As much as I think Randy Michaels is a brilliant deplorable, he shouldn't suffer the brunt of their mistakes. Which he is now both barrels both in the form of needing to re-market the stations, possibly extract them from the NBC tower, and to accept a paltry amount in the ongoing LMA.

Such paltry amount also does the remaining market a severe dis-service as it drives down the value of every stick in the market. No one will remember the detail of the pre-bankruptcy LMA rate was $600K/mo. per station. I know of one regional station which is getting pulled off the market as a result. The resulting conditions are simply too poor to sell with a fair return. Any sales coming up in this market may be fire sales or simply wanting out and cutting losses. Thank you Lou Dickey...and the bankers who rolled Cumulus's and Iheart's massive debt.

RR
 
The reason these stations are underperforming is not because of ownership, but because of what's on the air.

I disagree; it's due to a combination of the two.

Big difference: KSWD is an inferior signal, with low power despite being on Mt Wilson. A better reference would be the recent KXOS and KPWR sales, putting a parity signal in LA at the $80 million level.

I used KSWD as a reference point because, in that instance, the existing format was being flushed by the purchaser. Because of the format/programming issues you noted, I presume an acquirer would flush WLUP's existing format at a minimum and perhaps both formats. It takes time to build a new format and sustain ratings & billing momentum. If one uses a discounted cash flow model, dings cash flow pretty hard in the first couple years, and assumes a three to five year period to reach stabilized cash flow, I think a price in the mid $40's can be comfortably supported.

There is certainly a decent chance that in a non-distressed sale scenario, a buyer might be willing to pay more. Say, closer to $60 million for the two stations. However, it is clear to the entire universe that Merlin Media is desperate to sell. As such, they are not going to receive top dollar.

I also do not see how 5400 watts omnidirectional from 889 meters HAAT can be an inferior signal to 4000 watts from 425 meters HAAT unless engineering problems are present. True, much of KKLQ's signal goes into the mountains. However, much of WLUP's signal (and WKQX's signal) goes into Lake Michigan. How many people live within the 65 dBu of KKLQ (the former KSWD) compared to WLUP & WKQX? And how does the per capita income (or if you prefer, total consumer retail spending) within KKLQ's range compare to that of WLUP & WKQX?

The First Amendment to LMA (minus the annexes) can be read here:
http://document.epiq11.com/document...11&projectCode=CUI&docketNumber=396&source=DM

Key points:
--The $15,000 monthly LMA fee is not a flat fee; the $15,000 figure is actually a cap as to Reimbursement Obligations that Cumulus must pay Merlin. If Merlin's reimbursable out-of-pocket expenses are less than that amount, then Cumulus is only obligated to pay Merlin that lower amount. (So, the trade press' reporting on this point was not entirely accurate. Shocking, right?)
--It is unclear what is included within the Reimbursement Obligations; the Annex II where such obligations are defined was not included in the document filed with the court.
--If either side defaults under the terms of the LMA, a 10-day cure period shall be afforded.
--Licensee (Merlin) can terminate the agreement with 10-days' advance written notice should it enter into an agreement to sell the stations
--If Merlin does sell the stations to another party (or decides to keep the stations for itself), Cumulus will have the final say as to which employees stay with Cumulus.
--If Merlin intends to sell or assign the stations to a third-party, then Merlin needs to provide 24 hours' advance notice to Cumulus prior to execution of such transaction. (Presumably, this effectively gives Cumulus a chance to make a counteroffer.)
--Of note, in the event Merlin does sell the stations to a third party (or chooses to LMA them to a party other than Cumulus or in the highly unlikely event Merlin chooses to keep & program the stations itself), nothing in the First Amendment to LMA prevents any buyer or successor programmer from putting on a format that directly competes with any remaining Cumulus station.

By the way, I really liked Rex Radio's post before mine; he makes some great points. Kudos. :)
 
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As much as I think Randy Michaels is a brilliant deplorable, he shouldn't suffer the brunt of their mistakes. Which he is now both barrels both in the form of needing to re-market the stations, possibly extract them from the NBC tower, and to accept a paltry amount in the ongoing LMA.

He can always talk to someone else and tell Cumulus to pound sand (with 24 hour notice). However, in this depressed market, that could be more deplorable than brilliant.
 
I also do not see how 5400 watts omnidirectional from 889 meters HAAT can be an inferior signal to 4000 watts from 425 meters HAAT unless engineering problems are present.

The two Chicago FMs are as good as any other FM in the market. KSWD is the second lowest powered FM on Wilson and misses significant parts of the market.

You can't compare FM facilities in an essentially flat market with the ones in one of the more mountainous MSA's in the country. And you can't compare values between markets where one has $730 million in radio revenue and the other has just $430 million... a much smaller market in revenue and geography.

If you want to compare a "flush the format" stick purchase, look at KXOS's purchase from Emmis by GRC. $85 million for a "middle of the pack" facility on Wilson (18.5 kw at 3009 feet, about 100 feet higher than KSWD.).
 
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And you can't compare values between markets where one has $730 million in radio revenue and the other has just $430 million... a much smaller market in revenue and geography.

Of course I can compare the two. One just needs to make an educated guess at a valuation adjustment to account for the difference in market factors.

If you want to compare a "flush the format" stick purchase, look at KXOS's purchase from Emmis by GRC. $85 million for a "middle of the pack" facility on Wilson (18.5 kw at 3009 feet, about 100 feet higher than KSWD.).

Good info; thanks. That intel - after applying appropriate downward valuation adjustments to WLUP & WKQX - would certainly suggest both WLUP & WKQX on a combined basis should be worth more than the $50 million number that Cumulus refused to pay. If the seller were not a financially distressed party who clearly is desperate to unload the stations, I think a fair market value north of $50 million is certainly supported (consistent with what I wrote several weeks back). I still think Cumulus might not have been nearly as hesitant to pay that $50 million price tag if it weren't for the fact it would've forced them into obtaining DIP financing.

However, Merlin is clearly desperate to unload the stations, Cumulus is in bankruptcy (for who knows how long), and iHeart will be filing Chapter 11 within 30 days. SBS is in deep trouble financially, and Univision is seriously over-extended from a leverage standpoint as well. Entercom is maxed out locally. Urban One is financially weak and isn't going to enter (re-enter?) a market that is already loaded with Urban / Rhythmic stations.

So, the list of potential buyers I would think is pretty limited -- Hubbard, Sinclair, Weigel, maybe EMF, maybe Salem. Lew Dickey is going to save his dry powder for filing a competing Plan of Reorganization as part of the Cumulus Chapter 11 proceedings.

Add everything up, and I just cannot see anyone paying at least $50 million for the two stations on a combined basis. If such a buyer exists, we should know soon, because the only things preventing Merlin and such a would-be buyer from executing an Asset Purchase Agreement would've been (a) the need to get the prior contract between Cumulus & Merlin Media dismissed by the bankruptcy court and (b) normal pre-execution due diligence by the buyer. Now that (a) has been resolved, if one or more interested parties are already waiting in the wings, (b) should be taking place as we speak.

Given the circumstances, I cannot see Merlin Media holding out for a price that is north of $50 million. The widespread publication of the prior deal between Merlin and Cumulus in essence set a de facto price ceiling.
 
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Given the circumstances, I cannot see Merlin Media holding out for a price that is north of $50 million. The widespread publication of the prior deal between Merlin and Cumulus in essence set a de facto price ceiling.

It is interesting that the estimate for last week's Emmis sale of its St. Louis cluster to Hubbard is about $56 million. Would they want their old Chicago stations back? Or do they just bank the money towards paying down debt?
 
It is interesting that the estimate for last week's Emmis sale of its St. Louis cluster to Hubbard is about $56 million. Would they want their old Chicago stations back? Or do they just bank the money towards paying down debt?

It's entirely possible Emmis may want their stations back. Recall, they still carry something around 30% interest in the two licenses. But they're certainly not going to simply refund Randy's (his backers) money at face value. I expect them to take their 30% cash at present day value and run as fast and as far as they can with it.

I'm not going to go so far as to do a 2:1 ratio between St. Louis and Chicago DMA's in terms of value comparison. Emmis is unloading two of the market's top money makers and two low/middle packers. Keep in mind, St. Louis is not a distressed property market either. Chicago is. Their exposure to Cumulus and Iheart is in comparison minimal to other top 20 markets. That market uis dominated by CBS and Hubbard.

Also, one need not look any farther than Univision's unloading of now WPNA-FM for $5.5M last year. They bought it from Big City in 2002 for something around $30M (!!!). It was, and remains the highest purchase for a suburban Class A station in the midwest. Only the sale of the former co-located WYLL-FM eclipses that number for all suburban/non-downtown stations.

RR
 
Special interest user application

Its been many years since I was in the industry. So what I offer here may not be pertinent but Ill give it a shot. All of the discussion about the potential values of WLUP and WKQX has been through the prism of the traditional operator/operators (Hubbard, Cumulus, etc.). I've suggested that special interest users may see a higher market and where with all to acquire. I've posted an idea where, illustratively, the White Sox are worth 1.2 billion dollars and the Bulls are worth a little over 2 billion. These teams radio outlets are in a state of flux. I've suggested that the teams' ownership become a player in acquiring a radio property. Yet, I find find little thought on this perspective. Why am I wrong?
 
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