Radio One

Study Questions: “Radio One, Inc.”


  1. Why does Radio One want to acquire the 12 urban stations from Clear Channel Communications in the top 50 markets along with the nine stations in Charlotte, NC, Augusta, GA, and Indianapolis, IN?   What are the benefits and the risks?

      WHY?
      1. To draw more African-American listeners than any other radio broadcaster and cover more African-American households than any other media vehicle targeting that audience. 2. The radio network is equally attractive to advertisers because it was the only medium that reached audiences at work and in the car.
      3. Cost reduction due to administrative affair centralization
      4. Advertisement Capacity by providing “package” advertising deal
      BENEFITS
    1. By acquiring more stations, Radio One would grow to a competitive position in the industry.
    2. The resulting larger national footprint would bring greater advertising revenue and serve as a more meaningful platform for the company’s planned expansion into other forms of media, including cable, the recording industry, and the Internet.
      RISKS
        1. Financial Pressure due to mass acquisition
        2. Fail to operate efficiently and capture the demand
        3. Overpay during acquisition
        4. Non-diversified business

  2. What price should Radio One offer based on a discounted cash flow analysis?   Are the cash flow projections reasonable?





  3. What price should Radio One offer based on transaction and trading multiples analysis?

      Transaction multiple analysis:


      By looking at acquisitions done in market around that time, the transaction prices are 21.5x & 18.4x BCF, in order to anticipate the most costly situation, we use 21.5x BCF in our calculation. Meanwhile, from Exhibit 9 we know the market BCF of potential new market is 65,041.


      Offer Price = 65,041 * 21.5 = 1,398,381.5


      Trading multiple analysis:


      For... [continues]

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