| Radio One, Inc. |
To: Mr. Alfred Liggins III
From: Team 5
Date: [ November 22, 2011 ]
Re: Clear Channel Communications Inc. acquisitions
The recent merger between Clear Channel Communications Inc. and AMFM has presented a rare opportunity for Radio One, Inc. The proposed divestiture of Clear Channel will be the largest in the history of the industry. Radio One, Inc. can acquire 12 established urban stations in the top 50 markets, which rarely become available. Market analyst have already speculated on the possible acquisition, causing Radio One’s stock price to rise from the mid-$40s to $97 a share! The trading multiple is at around 30x’s the forward BCF, which is substantially larger than the typical
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Power ratios, which measure how the total radio advertising dollars in a particular market is being captured by a particular station relative to its audience, are trending up. The ratios still remain under 1, but there is a lot of upside. As Radio One continues to convince advertisers about the spending power of their base, it will bring greater advertising revenue. The acquisition will also help Radio One position itself to expand into other forms of media, including cable, recording, and internet. Radio One would be able to build new relationships with companies in the new markets which could help with the expansion. They would be able to create “packages” for advertisers that could include the new forms of media. The acquisition would draw more African-American households than any other broadcasting company that targets that audience. Any business that wishes to sell products to that group would know that Radio One is the place to advertise. There are risks involved with the acquisition that must be considered. Radio One would double the size of their company with this deal, which could cause complications. Radio One has grown rapidly in the past, but they have not engaged in a deal of this size before. This could prove to be a challenge for Radio One due to their lack of knowledge in pricing an acquisition of this size, as well as raising the necessary capital to complete the deal.