Fin 600_Radio one-Team 3_ final slides.pptx

caso Radio one adquisiciones

1. Radio One Inc.- An analysis of the proposed acquisitions TEAM 3 Boyega Ajayi Ines Chen Damon Delorenzis Jessica Jusuf Doreen Marcher

2. Opportunity for Radio One as a result of divestures by Clear Channel Communications. Potential acquisitions of 21 stations What is the right price? Case Introduction

3. The consolidation trend in the radio station industry. Reduced expenses Increased prices for radio stations Divestiture by Clear Channel Background

4. Evaluate the Broadcast Cash Flows (BCF) of the targeted radio stations Determine and evaluate appropriate multiples that can be used to evaluate the potential acquisitions Determine an appropriate offer price for the targeted radio stations Objective of Analysis

5. Multiples Broadcast Cash Flow (BCF) Earnings before Income Tax Depreciation and Amortization (EBITDA) After Tax Cash Flows Decision Criteria

6. Discount Rate  Unlevered Cost of Equity Discounted cash flow  Corporate Valuation Forecast period Horizon Value Multiple Analyses Methodology

7. rsu=rRF+(RPM)( ßu ) Hamada Equation Discount Rate - Unlevered Cost of Equity PRM 7.2% rRF 6.28% ßu 0.61 Average asset ß i 0.75 Rs 10.71%

8. Depreciation of property and equipment Straight line depreciation for 15 years Capital Expense = 21 new operating Units X $100,000 each = $2.1M Amortization Expense

9. NWC Adjustment Actual 1997 1998 1999 Net Broadcast Revenue 32,367,000 46,109,000 81,703,000 BFC 13,519,000 21,608,000 37,444,000 Total Current Assets 17,537,000 17,641,000 284,463,000 Total Current Liabilities 3,287,000 5,041,000 10,136,000 NWC 14,250,000 12,600,000 274,327,000 Change in NWC -1,650,000 261,727,000 NWC % of Revenue 44.0% 27.3% 335.8% NWC % of BFC 105.4% 58.3% 732.6% Adjusted NWC % of Revenue 44.0% 27.3% 22.0% NWC % of BFC 105.4% 58.3% 47.9%

10. Incremental Corporate Expense Adjustment Total BCF (1000s) 101,548, 116,079 136,034, 158,249, 180,786 205,920 Total Corporate Expense (1000s) 6,000 6,000 6,900 7,935 9,125 10,494 BCF - Potential New Markets 59,014 65,041 76,436 89,711 101,966 115,277 BFC- NewMarkets / TotalBCF 58.1% 56.0% 56.2% 56.7% 56.4% 56.0% Corp Expense for Potential New Markets (1000s) 3,487 3,362 3,877 4,498 5,147 5,875

11. Net Working Capital (NWC) % of BCF 47.90% Steady State Growth 4.00% WACC 10.71% Tax Rate 34.00% 　 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6/Steady State 　 1999 2000 2001 2002 2003 2004 2005 Revenue to Growth 　 8.22% 12.35% 12.56% 10.75% 9.89% 4.00% Gross Revenue $120,486 $130,384 $146,488 $164,891 $182,609 $200,676 $208,703 Direct Expenses 15,094 16,243 18,176 20,432 22,624 24,857 　 Net Revenue $105,392 $114,143 $128,313 $144,460 $159,985 $175,820 　 　 　 Operating Expenses $46,376 $49,102 $51,877 $54,750 $58,020 $60,543 　 BCF 59,014 65,041 76,436 89,711 101,966 115,277 $119,888 Corporate Expenses $3,487 $3,362 $3,877 $4,498 $5,147 $5,875 　 EBITDA $55,527 $61,679 $72,559 $85,213 $96,819 $109,402 　 Depreciation and Amortization $0 $0 $90,000 $90,000 $90,000 $90,000 $270,000 Depreciation Capital Expenditure $0 $0 $420 $840 $1,260 $1,680 $2,100 EBIT $55,527 $61,679 -$17,861 -$5,627 $5,559 $17,722 　 Taxes $18,879 $20,971 -$6,073 -$1,913 $1,890 $6,026 　 NOPAT $36,648 $40,708 -$11,788 -$3,714 $3,669 $11,697 $11,229 　 　 Add: Depreciation $0 $0 $90,000 $90,000 $90,000 $90,000 $90,000 Less: Capital Expenditure $0 $0 $2,100 $2,100 $2,100 $2,100 $3,516 Less: Increase in NWC 　 　 $3,662 $636 $587 $638 $51,904 FCF $36,648 $40,708 $72,450 $83,550 $90,982 $98,959 $45,809 　 　 Terminal Value $0 $0 $0 $0 $0 $710,399 　 FCF+Terminal Value $36,648 $40,708 $72,450 $83,550 $90,982 $809,358 　 　 　 Enterprise Value $669,705 　 　 　 NWC Balance $3,662 $4,297 $4,885 $5,522 $57,426 NPPE (CAPEX-Dep. Per year) -$87,900 -$87,900 -$87,900 -$87,900 -$84,384 NOPAT/Sale -0.08 -0.02 0.02 0.06 　 Sale/NPPE -1.67 -1.88 -2.08 -2.28 　 Multiples Enterprise Value / BCF 11.3 Enterprise Value / EBITDA 12.1 Enterprise Value / After-Tax Cash Flow 18.3

12. Net Working Capital (NWC) % of BCF 47.90% Steady State Growth 6.00% WACC 10.71% Tax Rate 34.00% 　 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6/Steady State 　 1999 2000 2001 2002 2003 2004 2005 Revenue to Growth 　 8.22% 12.35% 12.56% 10.75% 9.89% 6.00% Gross Revenue $120,486 $130,384 $146,488 $164,891 $182,609 $200,676 $212,717 Direct Expenses 15,094 16,243 18,176 20,432 22,624 24,857 　 Net Revenue $105,392 $114,143 $128,313 $144,460 $159,985 $175,820 　 　 　 Operating Expenses $46,376 $49,102 $51,877 $54,750 $58,020 $60,543 　 BCF 59,014 65,041 76,436 89,711 101,966 115,277 $122,194 Corporate Expenses $3,487 $3,362 $3,877 $4,498 $5,147 $5,875 　 EBITDA $55,527 $61,679 $72,559 $85,213 $96,819 $109,402 　 Depreciation and Amortization $0 $0 $90,000 $90,000 $90,000 $90,000 $270,000 Depreciation Capital Expenditure $0 $0 $420 $840 $1,260 $1,680 $2,100 EBIT $55,527 $61,679 -$17,861 -$5,627 $5,559 $17,722 　 Taxes $18,879 $20,971 -$6,073 -$1,913 $1,890 $6,026 　 NOPAT $36,648 $40,708 -$11,788 -$3,714 $3,669 $11,697 $10,995 　 　 Add: Depreciation $0 $0 $90,000 $90,000 $90,000 $90,000 $90,000 Less: Capital Expenditure $0 $0 $2,100 $2,100 $2,100 $2,100 $5,274 Less: Increase in NWC 　 　 $3,662 $636 $587 $638 $53,009 FCF $36,648 $40,708 $72,450 $83,550 $90,982 $98,959 $42,712 　 　 Terminal Value $0 $0 $0 $0 $0 $962,025 　 FCF+Terminal Value $36,648 $40,708 $72,450 $83,550 $90,982 $1,060,984 　 　 　 Enterprise Value $806,391 　 　 　 NWC Balance $3,662 $4,297 $4,885 $5,522 $58,531 NPPE (CAPEX-Dep. Per year) -$87,900 -$87,900 -$87,900 -$87,900 -$82,626 NOPAT/Sale -0.08 -0.02 0.02 0.06 　 Sale/NPPE -1.67 -1.88 -2.08 -2.28 　 Multiples Enterprise Value / BCF 13.7 Enterprise Value / EBITDA 14.5 Enterprise Value / After-Tax Cash Flow 22.0

13. Net Working Capital (NWC) % of BCF 47.90% Steady State Growth 8.00% WACC 10.71% Tax Rate 34.00% 　 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6/Steady State 　 1999 2000 2001 2002 2003 2004 2005 Revenue to Growth 　 8.22% 12.35% 12.56% 10.75% 9.89% 8.00% Gross Revenue $120,486 $130,384 $146,488 $164,891 $182,609 $200,676 $216,730 Direct Expenses 15,094 16,243 18,176 20,432 22,624 24,857 　 Net Revenue $105,392 $114,143 $128,313 $144,460 $159,985 $175,820 　 　 　 Operating Expenses $46,376 $49,102 $51,877 $54,750 $58,020 $60,543 　 BCF 59,014 65,041 76,436 89,711 101,966 115,277 $124,499 Corporate Expenses $3,487 $3,362 $3,877 $4,498 $5,147 $5,875 　 EBITDA $55,527 $61,679 $72,559 $85,213 $96,819 $109,402 　 Depreciation and Amortization $0 $0 $90,000 $90,000 $90,000 $90,000 $270,000 Depreciation Capital Expenditure $0 $0 $420 $840 $1,260 $1,680 $2,100 EBIT $55,527 $61,679 -$17,861 -$5,627 $5,559 $17,722 　 Taxes $18,879 $20,971 -$6,073 -$1,913 $1,890 $6,026 　 NOPAT $36,648 $40,708 -$11,788 -$3,714 $3,669 $11,697 $10,761 　 　 Add: Depreciation $0 $0 $90,000 $90,000 $90,000 $90,000 $90,000 Less: Capital Expenditure $0 $0 $2,100 $2,100 $2,100 $2,100 $7,032 Less: Increase in NWC 　 　 $3,662 $636 $587 $638 $54,113 FCF $36,648 $40,708 $72,450 $83,550 $90,982 $98,959 $39,616 　 　 Terminal Value $0 $0 $0 $0 $0 $1,580,995 　 FCF+Terminal Value $36,648 $40,708 $72,450 $83,550 $90,982 $1,679,954 　 　 　 Enterprise Value $1,142,621 　 　 　 NWC Balance $3,662 $4,297 $4,885 $5,522 $59,635 NPPE (CAPEX-Dep. Per year) -$87,900 -$87,900 -$87,900 -$87,900 -$80,868 NOPAT/Sale -0.08 -0.02 0.02 0.06 　 Sale/NPPE -1.67 -1.88 -2.08 -2.28 　 Multiples Enterprise Value / BCF 19.4 Enterprise Value / EBITDA 20.6 Enterprise Value / After-Tax Cash Flow 31.2

14. Enterprise value Steady Growth Rate Enterprise Value (000s) Scenario 1 4% 669,705 Scenario 2 6% 806,391 Scenario 3 8% 1,142,621

15. Enterprise Value Multiple of BCF Enterprise Value Multiple of EBITDA Enterprise Value Multiple of After-Tax CF Scenario 1 11.3 12.1 18.3 Scenario 2 13.7 14.5 22.0 Scenario 3 19.4 20.6 31.2 Multiple Analysis

16. CASE Q1: Liggins and Royster had to decide if Radio One should purchase the stations and how much to offer CASE Q2: What purchase price range that would make sense ?

17. Growth Depreciation Enterprise Value ($ 1000s) BCF ($ 1000s) Enterprise Value Multiple of BCF 4% 15 year 669,705 59,014 11.3 6% 15 year 806,391 59,014 13.7 8% 15 year 1,142,621 59,014 19.4 Multiples Analysis of BCF

18. Too many factors make it very difficult to assess an Acquisition proposal accurately The Cost of Capital for the targeted stations is an assumption that could be changed Expenses such as corporate expense and net working capital are based on assumptions that the targeted radio stations will have ratios similar to Radio One Strengths and Weaknesses

19. As revealed by the risk analysis, some of the stations may be overvalued Radio One should acquire all 21 stations and we recommend an offer not greater than 21 x BCF The management should capitalize on their high stock price when structuring the acquisition of the 21 targeted radio stations Conclusion & Recommandation

20. ？ Thanks