Radio One Inc. continues its sell-off of various radio stations in an effort to shore up its fiscal strength. The nation’s largest African American radio entity and the nation’s seventh largest radio operator recently announced it will sell its Los Angeles station, KRBV-FM, for about $137.5 million to Bonneville International.
With this move, Radio One (No. 11 on the BE INDUSTRIAL SERVICE 100 list with $413 million in revenues) will no longer have a presence in one of the largest radio markets by revenue.
According to a statement from Radio One, the sale will allow the firm to reduce its debt, focus on its new Internet initiative, and begin a $150 million stock buyback program. Radio One, based in Lanham, Maryland, trades on NASDAQ (ROIA) currently at a share price of $1.49.
Radio One owns and/or operates 54 stations in 17 markets targeting African American and urban listeners. The broadcasting company reported a 40% decline in profits in the third quarter of 2007 and has been selling off radio stations in non-core markets. In 2006, it announced the sale of $150 million worth of radio stations in underperforming markets.
According to Marci Ryvicker, vice president at Wachovia Capital Markets L.L.C., the sale of the Los Angeles station and the stock buyback plan should improve the company’s financial strength. “This station was a significant drag on the company’s margins. Radio One was unable to compete in Los Angeles, as evidenced by its declining share over the past 2-plus years,” Ryvicker says.
With a continued decline in profits, shareholders have been nervous about the company’s financial stability. Radio One’s leverage ratio—which measures its ability to pay principal and interest while obtaining additional financing—is getting close the limits set in its existing loans, which creates a fear of bankruptcy among the investor community.
New York-based Granite Broadcasting Corp., one of the nation’s largest black-owned media broadcasting companies, was forced to file for Chapter 11 bankruptcy protection in December 2006, listing more than $640 million in outstanding debts. At the time, the company had attempted to sell its WB network-affiliated Detroit and San Francisco stations to help restructure its debt, but the deal fell apart amid the demise of the WB and creation of The CW network.
With Radio One’s stock trading at less than $2 a share, its buyback plan seems reasonable. However, Ryvicker does not see the company utilizing this repurchase in any significant manner. “The math does not work given its significant leverage even subsequent to the sale of KRBV-FM. We would rather see the company focus on repaying debt, especially in this environment,” he explains. “So far, share repurchases have not created any value for radio shareholders, and we do not anticipate Radio One’s to be any different.”
Radio One has continued its expansion into non-radio media formats and currently owns Giant Magazine, BlackAmericaWeb.com, and REACH Media. It also owns TV One in conjunction with Comcast, DirecTV, and a group of private investors. While Radio One is beefing up its interactive presence, some analysts see possible problems arising.
“Interactive is a much lower margin business than is radio, and it is rarely sold correctly,” Ryvicker says. “The biggest problem is that there do not seem to be any synergies among Radio One’s different products, and at the end of the day, its core business is radio which continues to lack pricing power.”
Radio One executives would not comment further. Its board of directors has yet to authorize the repurchase of up to $150 million in stock through the end of 2009.