This column has been updated from a previous version that ran earlier this month.
Some time this morning, a press release will be distributed across the country announcing the Entercom/CBS merger, that was first announced in February, has finally closed. CEO David Field will address the troops, and although we have not seen his speech, he will most likley tell his new employees how excited he is to now have them, and some of the radio industry’s most recognizeable brands, under the Entercom ownership umbrella.
Here’s another look back at how this all happened.
When 2016 rolled into 2017, Entercom Communications was the fourth-largest radio company with 127 stations in 27 markets.
Then came February 2.
That’s the day the press releases started flying from Entercom, which, according to BIA/Kelsey, was generating about $500,000 in revenue, and CBS Radio, which was generating about $1.2 billion.
The announcement was that the two companies would be merging in what is called a “Reverse Morris Trust” transaction. A Reverse Morris Transaction is a tax-optimization strategy in which a company wishing to spin off and subsequently sell assets (CBS) to an interested party (Entercom) can do so and avoid taxes on any gains from disposing the assets. The key feature to preserve the tax-free status of a Reverse Morris Trust is that after its formation, stockholders of the parent company own at least 50% of the stock by vote and value of the combined or merged firm.
According to SNL Kagan, this merger is valued at $2.86 billion, making this the largest radio transaction since 2006.
HISTORICAL NOTE: In case you were keeping score at home: Clear Channel went private to Bain Capital Partners and Thomas H. Lee Partners in November of 2006. ABC Radio went to Citadel for $2.7 billion in February in 2006. Radio folks call that: “The Good Old Days.”
It was no secret that CBS head honcho Les Moonves wanted out of radio. He never really gave it much air-time during his earnings calls and he was aggressively looking into spinning it off.
Enter David Field.
Field, a radio guy from a radio family who wanted to grow his company in the smartest possible way and put himself — and Entercom — in a position to be a bigger advocate for the industry he has consistently stated is under-valued. The new company would become a much larger Entercom and William Paley’s CBS Radio would go away.
Side Note: In 1927, Paley’s father, brother-in-law, and some business partners bought a struggling Philadelphia-based radio network of 16 stations called the Columbia Phonographic Broadcasting System. Samuel Paley’s intention was to use his acquisition as an advertising medium for promoting the family’s cigar business. Within a decade, Paley had expanded the network to 114 affiliate stations. And, oh yeah, the cigar business soared.
The original announcement stated Entercom would end up with 244 stations, including clusters in 23 of the top 25 U.S markets. But that was sure to change with CBS and Entercom overlapping in several markets, putting them over the caps. And with CEO David Field still stinging from the government dragging its feet on approving the 2014 Lincoln Financial Deal, you can bet extra time was spent on making sure DOJ was going to be happy, happy, happy with Entercom’s divestiture plan.
The original speculation was that Beasley, Bonneville, and Hubbard would be players when the station-spinning started. After all, Cumulus and iHeartMedia were a little short on spending money. But David Field has always praised iHeart and the job Bob Pittman has done as the CEO of the company and as a strong advocate for radio.
When the dealing began it was EMF that stepped up to the plate first with a check for $57.75 million for three FMs: one in San Diego (KSOQ-FM), one in Los Angeles (KSWD-FM), and one in Wilkes-Barre (WGGI-FM).
Despite the sting from the Lincoln Financial DOJ beatdown in 2014, David Field never wavered from his expectation that the deal would close in the fourth quarter. He sent regular memos to his employees telling them how great things were going to be when the deal was finally closed. Of course, as an employee at one of the two companies going through a massive ownership change, you always take those comments from corporate with a grain of salt. You just never know who’s team you’ll wind up on, who’ll you’ll be selling against and who your manager will be. ‘Oh no, not that guy.’ It’s disruptive and affects how you work, even Field admitted that reality, Thursday. All of those employees found out exactly where they would be working earlier this week.
The next set of deals involved Beasley, Bonneville, and yes, iHeartMedia. Beasley picked up one station in a swap for one with Entercom in Boston. Under an LMA, Bonneville is getting four stations in San Francisco and four stations in Sacramento. And iHeartMedia snagged four stations in Boston and three stations in Seattle in a swap with Entercom, which is getting six in Richmond and four stations in Chattanooga.
In all, Entercom/CBS divested 19 stations in seven markets and Entercom picked up 11 new stations in three markets. Plus $265 million in cash.
And all that dealing made the Department of Justice happy, happy, happy.
When the deal closes today, Entercom will have 235 stations, 10 less than originally projected when the deal was announced in February. It will own sports. Entercom was already a big player in sports talk and play-by-play, and so was CBS.
SIDE QUESTIONS: After moving WBZ-FM The Sports Hub to Beasley in Boston, will Entercom eventually fight Beasley for the rights to the New England Patriots, Boston Bruins, and/or The Boston Celtics for WEEI? Will Beasley fight as hard to keep those franchises as CBS Radio did under Dan Mason?
SIDE ANSWER: Since the first time this column ran, earlier this month, we spoke to several Beasley employees who are very excited to have WBZ in the Beasley Boston portfolio. They tell us the staff is great and they cannot wait to begin operating it.
When this deal closes today, Entercom CEO David Field will be in charge of a company with estimated annual revenues of $1.7 billion. The larger company will not be over-leveraged, so Field will be in charge of the largest company not constantly worried about kicking the debt can down the road. It’s actually quite the opposite. He will have fresh powder for more strategic transactions, which he has said he’ll be pursuing. Field will have the scale he always wanted and the stage to promote his company and the radio industry in a way he’s never believed anyone has done successfully before.
“As an incumbent media competing with shinier and sexier alternatives, radio has suffered from inaccurate perceptions that fail to grasp its vibrancy and effectiveness. It has also suffered from a woeful lack of industry advocacy that enabled false perceptions to permeate the thinking of advertising leaders. In short, radio has been punching below its weight class.”
…David Field (2/23/17)
Field has said this deal will be a game-changer. Time will tell if that’s true. This week at Radio Ink’s Forecast event in New York City, most executives agreed this deal is going to be good for the industry.
Ed Ryan is the Editor-in-Chief of Radio Ink Magazine and can be reached at [email protected]