Cumulus Media (CMLS)

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Based in Atlanta, Georgia, Cumulus Media is the second largest radio broadcasting company based on the number of stations and the third largest based on revenue. Cumulus Media owns and operates 347 radio stations in 68 mid-size and smaller U.S. media markets. Through its 25% ownership in Cumulus Media Partners (CMP), the company operates radio station clusters for large-sized markets. It also provides sales and marketing services under local marketing, management, and consulting agreements in addition to owning and operating a radio network covering Trinidad, St. Kitts-Nevis, St. Lucia, Montserrat and Antigua-Barbuda. The company has also been granted licenses for FM stations covering Barbados and Tortola, British Virgin Islands.

The company generates its revenue primarily from advertisements run on its radio stations. Most ads come from automotive dealers, home furnishings, banking, telecommunications, food services and beverages, general merchandise retail, arts and entertainment, and healthcare services. The company's mid-sized media markets are characterized by fragmented ownership. Cumulus Media's growth strategy is to acquire important stations, or clusters of stations, and develop and streamline the stations' operations to attract audiences and advertisers.

Buyout offer

On July 23, 2007, Cumulus announced that it has agreed to a management buyout led by Chairman and CEO, Lew Dickey, and Merrill Lynch Global Private Equity for $11.75 per share, or $386 million (which excludes the Dickey family ownership stake), plus the assumption of roughly $738.2 million in debt. The purchase price implies a total value of $1.3 billion for the company and represents a multiple of 13.2x our 2008 EBITDA estimates. At the time of the announcement, the buyout price was a 40% premium to the prior day's close. The transaction will be financed through a combination of equity from CEO Lew Dickey, members of the Dickey family, certain Cumulus executives, in addition to equity from Merrill Lynch Global Private Equity and debt from Merrill Lynch Capital. We estimate debt will be more than $900 million by year-end, and leverage will be a very steep 9.5x our 2008 EBITDA estimate of $95 million. The deal is subject to shareholder and regulatory approvals and the company can solicit higher bids for 45 days.

In our view, the significant volatility in the credits markets that began after the deal was announced could derail this deal. As mentioned above, after this deal, leverage would be a very steep at about 9.5x our 2008 EBITDA estimate of $95 million. With credit tightening and risk premiums rising, we think this deal may have to involve more equity or may not get done at all.

THE FOLLOWING POSITIVE AND NEGATIVE OPERATIONAL ASPECTS OF CMLS STOCK ASSUME THAT THE BUYOUT WILL NOT BE COMPLETED.

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