Fallout from the CBS Sale in Rochester

[Radknowski]

The DOJ has signed off on the sale, but Entercom has to get rid of three stations, and the winners are:

Fickle, Zone and Warm.

These stations might fetch a fair price. On the upside, the two "A's" look like they have a good signal and WRRM is a 50 kW ERP-B. Both Fickle and The Zone run cheap.

On the downside, it would be the "short" cluster going up against two overpowering giants.

Might WDKX make a good suitor for the three FM's, potentially sliding the WDKX format and call letters over to 101.3, having three fairly competitive Class A's remaining and putting WRRM on the best "A" in the cluster.[/Mike]

 

[Mark_Giardina]

I worked at WRMM when it was called WEZO and that station has been sold more than times than I can count.

For the current WRMM employees lets hope the new owner doesn't take a cue from CC and start cutting staff to save a few bucks. I can just imagine Otto Mation on right after Tony and Dee, if those two are still there.

Hey they make good bucks and today's bottom-liners are looking at how they can save on salaries and benefits while still generating sales dollars.

Remember the old adage. Anyone can be replaced.

 

[Kent]

Might WDKX make a good suitor for the three FM's, potentially sliding the WDKX format and call letters over to 101.3, having three fairly competitive Class A's remaining and putting WRRM on the best "A" in the cluster.

Neither is likely. The three stations will likely fetch a much higher multiple than WDKX could pay, and WRMM is pretty much a license to print money. It will likely be left alone. My gut feeling is that Entercom will swap the stations, though I have no idea who would end up with them.

 

[Element9]

Neither is likely. The three stations will likely fetch a much higher multiple than WDKX could pay, and WRMM is pretty much a license to print money.It will likely be left alone.My gut feeling is that Entercom will swap the stations, though I have no idea who would end up with them.

Quite a salient observation, Kent, no doubt based on your extensive experience and familiarity with the Rochester market. I concur with your observation. WRRM is a cash cow on 101.3 and a frequency switch wouldn't make sense.

Although the multiples for WRRM, Fickle and The Zone would be a tough number, wouldn't Entercom receive some tax benefit from spinning the station to a locally owned, minority owner such as WDKX?

If, as you suspect, Entercom might swap the stations, who would be a likely partner?

Citadel? Regent? Cumulus?

-9-

 

[Mark_Giardina]

I spoke with someone who works at the CBS stations and they said the deal to seel WRMM is not solid. So don't be surprised if Entercom sells off another station instead. WRMM makes money and has good ratings. Other stations in the chain do not.

 

[SirRoxalot]

Jerking Around with the DOJ

The problem that Entercom has with the DOJ is the size of their propective advertising market share. If they don't sell WRRM, they'd have to sell another station that has similar impact. Considering that the DOJ has already approved the sale of WRRM, Fickle, and the Zone, I suspect that those will be the three that go.

Their prospective suitor at the time they agreed with the DOJ may not be a lock. Entercom may have looked at what Regent paid for the Buffalo CBS properties and decided that they can do better.

Speaking of Regent, do they have any cash left?

 

[Bob1370]

I would doubt that DOJ would raise too many objections if Entercom spun off a different Class-B full market coverage FM in the market to meet their crtiteria. Of the three they could sell, I'd say WPXY would be the most likely candidate--youngest demos, probably the weakest billing of the three, but still format-dominant and enough of a factor in the market and enough of a potential player that dumping it to another owner together with Zone and Fickle will mollify the Feds.

The potential buyer is the interesting question. Clear Channel's out, they are about maxed in the market now because of their TV/2 AM/3FM cluster and may well be selling in a lot of markets rather than buying in any event. Regent might be interested in kickiing the tires but may not have the spare bucks after it digests its Buffalo buys. Citadel had its chance to step into the market by taking the full CBS package and passed, so I can't see them coming back and picking up the leftovers. Cumulus, maybe...but have they been in much of a buying mood these days? And didn't the Dickeys' sour experience with WSAY 25 years ago (an experience which was also sour for the people who worked for them then) turn them off this market, and burn a lot of bridges with the upper tier of local air. sales and managerial talent as well?

So who's there with the cash to buy, and the size to make a multistation cluster work? And this isn't the best time to sell, given the current economics in the industry and in the upstate NY region. If they have trouble finding a buyer close to the asking price, there could be some bargains available...

 

[Mark_Giardina]

The potential buyer is the interesting question. Cumulus, maybe...but have they been in much of a buying mood these days? And didn't the Dickeys' sour experience with WSAY 25 years ago (an experience which was also sour for the people who worked for them then) turn them off this market, and burn a lot of bridges with the upper tier of local air. sales and managerial talent as well?

Personally I don't see Cumulus buying any Rochester stations just for the reasons you mentioned.

 

[raymond_shaw]

My guess would be a group like Regent(who are buying the CBS Buffalo cluster) or some other chain that's looking to expand into a larger market.

 

[Radknowski]

The potential buyer is the interesting question. Clear Channel's out, they are about maxed in the market now because of their TV/2 AM/3FM cluster and may well be selling in a lot of markets rather than buying in any event. Regent might be interested in kickiing the tires but may not have the spare bucks after it digests its Buffalo buys. Citadel had its chance to step into the market by taking the full CBS package and passed, so I can't see them coming back and picking up the leftovers. Cumulus, maybe...but have they been in much of a buying mood these days? And didn't the Dickeys' sour experience with WSAY 25 years ago (an experience which was also sour for the people who worked for them then) turn them off this market, and burn a lot of bridges with the upper tier of local air. sales and managerial talent as well?

So who's there with the cash to buy, and the size to make a multistation cluster work? And this isn't the best time to sell, given the current economics in the industry and in the upstate NY region. If they have trouble finding a buyer close to the asking price, there could be some bargains available...

Precisely. It's for this reason that I suggested that a sale to WDKX might make sense. It appears to be a buyers' market in this regard.

Admittedly, my suggestion about moving WDKX to WRRM's frequency was off base, but it's because WDKX is an established albeit one-station owner that buying WRRM, Fickle and The Zone might make business sense. As to the high multiples, companies buy stations with high multiples all the time. Half the industry has been purchased on high multiples (another reason it's in such sad shape.)

WDKX is such a success that it seems that it would be more than an acceptable collateral on the purchase of the three properties is required to spin off.[/Mike]

 

[Kent]

Quite a salient observation, Kent, no doubt based on your extensive experience and familiarity with the Rochester market. I concur with your observation. WRRM is a cash cow on 101.3 and a frequency switch wouldn't make sense.

Thanks for the good words.

Although the multiples for WRRM, Fickle and The Zone would be a tough number, wouldn't Entercom receive some tax benefit from spinning the station to a locally owned, minority owner such as WDKX?

I know the old program to allow companies to defer capital gains tax by selling to a minority buyer was killed shortly after the Telecom Act, largely because of the Times-Mirror TV sale in the mid-90's. I understand there was a proposal to bring it back but with stricter rules. I don't know how far it got. Fortunately, I haven't had any dealings with it. The reason I see Entercom as trying to swap the stations is because they could swap the base value of the stations with the other party and, therefore, pay no capital gains taxes until they sold whatever they got in the swap. Of course, they could do multiple swaps down the line and continue to swap base values. You get the idea. It's the ideal way to get rid of your excess.

If, as you suspect, Entercom might swap the stations, who would be a likely partner?

Citadel? Regent? Cumulus?

-9-

Your guess is as good as mine. However, I would suspect Entercom has been working the phones with the above parties as well as probably a few others!

 

[Kent]

WDKX is such a success that it seems that it would be more than an acceptable collateral on the purchase of the three properties is required to spin off.[/Mike]

Not a chance. I'm not trying to take away from WDKX. It's a great station that has managed to carve out an existence by actually filling a need in the market as opposed to loading up on every available signal in the market and cornering the 25-54 demo. Props to them for that! However, WRMM is worth substantially more than 'DKX. Remember, WDKX doesn't bill up to the level of its ratings while WRMM bills much higher than the 12+ ratings would indicate. I can't imagine any bank leveraging three stations on the back of one, especially when one of the stations is worth more than the collateral. Remember, from looking at Regent's financial statements, we can pretty well guess they leveraged almost the entire company to get Buffalo. Think about how many stations that is, and that was just to acquire five. Whoever wants Entercom's excess can expect to pay at least 12x cash flow. For WDKX to buy Entercom's excess, they'd have to be sitting on some considerable dry powder or work some incredible terms out with Entercom. Buyer's market or not, don't look for Entercom to come down on its price by much.