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Atlanta-Based Firm, Partners Aim to Buy 33 Radio Stations

Posted on: Tuesday, 1 November 2005, 15:02 CST

By Scott Leith, The Atlanta Journal-Constitution

Nov. 1--Cumulus Media and a trio of partners plan to purchase a batch of U.S. radio stations -- including two in Atlanta -- in a move that could be the first of more deals to come.

Atlanta-based Cumulus, which owns upward of 300 radio stations in mostly small and midsize markets, on Monday announced the creation of a new venture called Cumulus Media Partners.

The group is spending about $1.2 billion to buy 33 stations from Susquehanna Pfaltzgraff of York, Pa.

The company's properties include stations in major cities such as San Francisco and Dallas.

In Atlanta, the Susquehanna stations are WNNX, an alternative rock station known as 99X, and WWWQ, a top 40 station dubbed Q100.

Cumulus needed the help of three private equity firms -- Bain Capital, Blackstone Group and Thomas H. Lee Partners -- to pull off the expensive deal, which was its priciest ever.

Company Chairman and CEO Lew Dickey said his ongoing goal is to buy more stations. He's especially interested in Walt Disney Co.'s ABC Radio unit, which has a portfolio of coveted stations in several major markets, including three in Atlanta. ABC Radio could be worth two to three times as much as Susquehanna, Dickey said, and is likely to attract a number of bidders.

"I believe this industry is ripe for a second major wave of consolidation," Dickey said. "It was so important for us that we got this deal."

The radio industry went through much consolidation after a change in federal law in 1996 loosened ownership rules.

The industry is now topped by two giants, Clear Channel Communications and Infinity Broadcasting, a unit of Viacom. The other big players include Cumulus and another Atlanta-based company, Cox Radio, controlled by Cox Enterprises, which owns The Atlanta Journal-Constitution.

Until 2003, Cumulus was a busy acquirer of smaller stations -- Dickey said the company spent $700 million from 2001 to 2003. But stations became too pricey, he said.

Susquehanna's stations went on the market this year, after the elderly owners of the family-held company moved to dispose the business's various pieces, including the famous Pfaltzgraff line of dinnerware.

Company CEO Bill Simpson said the radio properties attracted a number of suitors before the Cumulus partnership emerged as the victor. "We're very pleased with the fact that it is Cumulus," he said. "They have a very good reputation in the industry."

Susquehanna Pfaltzgraff also disclosed Monday it has a deal valued at $775 million to sell its cable TV and broadband operations to Comcast.

In the radio agreement, Cumulus isn't throwing in any cash.

Instead, it is contributing four FM stations the company already owns: two in Houston and two in Kansas City.

Cumulus holds 25 percent of the partnership, but its stake could grow to about 40 percent, depending on certain "performance incentives," the company said.

Dickey hopes Cumulus' stock price will benefit from the accord with Susquehanna, although Cumulus Media Partners is a separate, private entity. Cumulus shares surged 11.2 percent Monday after the deal was announced, closing at $12.16. However, Cumulus is still down 19.4 percent for the year.

Analyst Maurice McKenzie, of Friedman Billings Ramsey in Arlington, Va., said in a report that the Susquehanna deal should make Cumulus attractive to "patient, value investors." While the company will lose $7 million to $8 million in revenue from putting its Houston and Kansas City stations in the partnership, McKenzie noted the amount will be partly offset by $4 million in annual fees the company is getting to manage the Susquehanna stations.

Assuming the Susquehanna deal closes in the first half of next year as expected, Cumulus will own or manage 343 stations.

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Source: The Atlanta Journal and Constitution

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