The radio market’s vibrancy will be tested with today’s kickoff of the auction for 50 stations owned by CBS.
First-rounds bids are due today, and industry watchers, not to mention CEO Les Moonves, are curious to find out how large the gap is between buyers’ valuations and the seller’s sense of worth.
“We don’t know what the marketplace is,” Moonves admitted during a Goldman Sachs conference last week. “If we don’t get the right pricing for it, we’re not going to sell.”
CBS, which is not using an investment bank to help with the auction and is instead handling it in-house, is trying to unload 50 stations in 12 markets, including Las Vegas, San Diego, Baltimore, Cleveland and others.
Among those to receive books and expected to bid are: Cumulus Media, Entercom Communications, Bonneville Broadcasting, Connoisseur Communications, and Tribune Co., as well as former radio industry executive Bobby Lawrence and former CBS Radio CEO Joel Hollander.
Historically, radio stations have sold for a cash flow multiple of 12 times or more.
Given the difficult financing climate and deteriorating nature of the radio business, however, sources said it would be a victory if CBS can get a nine or 10 times cash flow multiple.
But these sources said they expect bids, at least in the first round, to come in between seven and eight times cash flow.
CBS’ strategy in selling the stations is to slim down its radio unit to focus on the nation’s Top 20 markets.
But there are some who think CBS would be better off jettisoning the entire radio division in one shot rather than selling some stations now and deciding what to do with the others later.
“The radio business is a melting ice cube,” said RBC Capital Markets’ David Bank. “While the cash flow is valuable, CBS would be better off selling the [whole] asset today instead of waiting a couple of years and selling the rest for less.”