Entercom-CBS Radio Creates Much Bigger No. 2 in the Biz

Story by Inside Radio

When the blockbuster Entercom-CBS Radio merger closes in the second half of this year, the radio industry will boast a stronger No. 2 group owner in terms of revenue. While the pecking order of radio’s top titans won’t change, the wide gulf between No. 1 and No. 2 will be reduced considerably.

What Entercom CEO David Field calls a “transformative deal” will produce a footprint of 244 stations in 47 markets, including 23 of the top 25 markets. The CBS-fortified Entercom will claim pro forma revenues of $1.67 billion with the lion’s share ($1.22 billion) coming from CBS Radio and the remainder ($455 million) from Entercom. The merger will deliver $493 million in cash flow—$353 million from CBS Radio and $115 million from Entercom. (The remainder will come in the form of $25 million in expected cost synergies.)

“What has emerged is a stronger radio industry,” BIA/Kelsey chief economist Mark Fratrik said. “The combined Entercom-CBS Radio group would be closer to the size of the industry leader—iHeartMedia—which only can foster the radio industry’s ability to compete against its many new competitors.”

In terms of overall share, Entercom-CBS Radio cordoned off 12.6% of over-the-air radio ad dollars, compared to 18.5% for iHeart based on BIA/Kelsey’s 2015 estimates. The creation of a stronger No. 2 competitor against the No. 1 operator may help ease any worries that Department of Justice regulators have about allowing further consolidation in the radio advertising market.

As with any merger, one of the lures is the likelihood of significant cost cuts in the expense side of the ledger. Entercom told investors during a Thursday morning conference call to expect at least the $25 million in annual cost synergies within 12-18 months after the deal closes. The company did not say how many of those will come in the form of job cuts. Field said most of those cuts would come at the corporate level and that the $25 million was a “conservative” estimate.

Spinoffs, too, are unavoidable. To meet FCC local ownership caps, Entercom will need to unload about 15 stations, putting prime radio real estate on the block in Los Angeles, San Francisco, Boston, Seattle, San Diego and Sacramento. “Swaps are a very likely outcome here,” Field told investors.

With one of the strongest balance sheets in the business, Entercom was able to pull off the mega-deal without over-leveraging its capital structure. Entercom says its deal with CBS Radio will net a “strong and flexible capital structure” with a pro forma leverage of about 4.0X cash flow. That’s below the leverage of Townsquare Media (5.3X) and far below that of Cumulus Media (10.8X) and iHeart (11.0X).