Radio One Case Study

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Part 1:
In 2000, Radio One, Inc. sees strategic opportunity in the opportunity to grow through acquisition, following a Clear Channel divestiture mandated by the FCC. The divestiture poses the opportunity to Radio One to acquire twelve (12) urban stations that are in the top 50 African American markets in the U.S. Even though the company saw tremendous growth through acquisition over the prior decade, this unique situation has the potential to generate significant shareholder value and further increase market dominance. If they choose to acquire these 12 channels, along with 9 other stations in a separate acquisition, it would double the size of Radio One and give it a national presence in the largest African American markets.

BENEFITS:
The acquisition would make Radio One, Inc. a market leader in African-American radio stations. From a revenue standpoint, this move will create a larger African-American advertising base than any other media corporation in the United States. Furthermore, listener market size has been increasing at a faster rate than the general population and target demographic income has been increasing faster than the U.S. average as well. Following the acquisitions, Radio One, Inc. would be a media leader with reach comparable or beyond market leaders in other types of broadcast media. In summary, by enormously increasing its advertising base, Radio One will be able to create a new marketing paradigm for its demographic and command higher advertising rates for its more specifically targeted consumers.

RISKS
This is a large transaction, both in terms of capital requirements and in number of stations. This acquisition would double the amount of radio stations, thereby increasing management complexity and requiring additional resources to maintain growth. Radio One recently completed an IPO and dramatically raised capital reserves and broadcast revenues. However, additional financing will likely be necessary. Furthermore, Radio One has historically seen above average growth, profits, and valuations due to its unique strategy of transforming underperforming stations in key markets and achieving above average gains. One last risk for Radio One is in adequately leveraging their competence and corporate knowledge of other media formats such as cable, recording industry and the internet.

Part 2: Estimate of Existing Markets
Net Income|  |  |  | Projections|
 | 2001| 2002| 2003| 2004|
Broadcast Cash Flows (BCF)| 59,598 | 68,538 | 78,820 | 90,643 | - Corporate Expenses| 5,495 | 6,319 | 7,267 | 8,357 | - Depreciation| 17,073 | 17,073 | 17,073 | 17,073 | = EBIT| 37,030 | 45,146 | 54,480 | 65,213 | - Taxes (35%)| 12,961 | 15,801 | 19,068 | 22,824 | = Net Income| 24,070 | 29,345 | 35,412 | 42,388 | | | | |  |

Estimate of NWC and Change of NWC|
 | 2001| 2002| 2003| 2004|
Current Assets| | | |  |
- Current Liabilities|  |  |  |  |
= Net Working Capital (NWC)| 31,221 | 34,716 | 38,124 | 41,722 | | | | |  |
NWC as a percentage of revenues| 25%| 25%| 25%| 25%|
| | | |  |
 | 2001| 2002| 2003| 2004|
Net Revenues| 124,884 | 138,863 | 152,494 | 166,887 | Change in Net Working Capital| 3,244 | 3,495 | 3,408 | 3,598 | | | | |  |

Capital Expenditures|
 | 2001| 2002| 2003| 2004|
Capital Expenditures| 4,683 | 5,619 | 6,743 | 8,092 | | | | |  |
Cash Flows|
 | 2001| 2002| 2003| 2004|
Net Income for Year| 24,070 | 29,345 | 35,412 | 42,388 | - Increase in NWC| 3,244 | 3,495 | 3,408 | 3,598...
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