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CBS Radio IPO may spur M&A activity in sector


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CBS Radio IPO may spur M&A activity in sector

's for an initial public offering of itscommon shares has analysts pondering whether the move could trigger M&A activityin the sector.

's ultimate to spin off the radio division, whichfeatures a strong presence in many of the nation's top markets, could engender somenew interest in the radio arena that has seen scant deal activity of late, analystssaid.

Radiostation sales through June 30 reached $125.2 million, comprised of $66.3 millionfor full-power FM stations and $16.6 million for low power FM, plus another $42.3million for AM stations, according to data from SNL Kagan, an offering of S&PGlobal Market Intelligence. That represented the lowest first-half total since 2012.

CBS Radiocounts 117 stations (88 FM, 29 AM) with 76% in the top 25 markets rated by . Total revenuesfor the year ended Dec. 31, 2015, were $1.23 billion, down from $1.30 billion in2014. Broadcasting revenue declined to just over $1 billion in 2015, from $1.08billion the prior year. Digital, events and other revenue reached $229.5 million,up from $225.2 million.

Notingthe shrinking investment in the radio sector of late, SNL Kagan senior researchanalyst Justin Nielson said the IPO "can provide valuation and get the investmentcommunity to look at the industry again."

AdamJacobson, a media strategist and advisor who follows the radio industry, believesthere could be "some appeal," but said it is premature to assess how successfulthe offering might be and what it could mean for the industry from a broader perspective.

"It'sdifficult for the industry to gain investment attention if the top players are experiencingfinancial difficulties," he said, alluding to the debt troubles at iHeartMediaInc. and Cumulus MediaInc.

Nielson,who pointed to Entercom CommunicationsCorp. and Beasley BroadcastGroup Inc. as sector players that are performing well, said that iHeart's problem is "nota revenue issue," as the company has seen top-line expansion. He added thatthere has been growth with the company's event business that is proving to be agood promotional vehicle for its stations.

Whileacknowledging the industry is mature, with potential for only moderate ad salesgains overall, Nielson said that if debt levels are reasonable, radio can stillbe a solid media producer. If a company is only levered two or three times, businesscan generate cash flow margins in the 30% to 40% range, he said.

Accordingto the registration filing, CBS wants to separate CBS Radio via a tax-free split-off,and plans to divest the radio shares that it will indirectly own upon the completionof the IPO after the "lock-up" period. CBS could sell CBS Radio commonstock via different transactions if it fails to proceed with the split-off. Thecompany could also decide not to dispose of the common stock.

CBS Radioplans to distribute a portion of the net proceeds to CBS, with the remaining amountset aside for general corporate purposes and ongoing cash needs.

The companydid not name any underwriters in the filing. The number of shares to be offeredand the price range for the proposed offering have not yet been determined.

Nielsonbelieves CBS "tested the waters" with a March announcement of its intentto sell or spin off the radio group to help determine its value in the public markets.The tax implications ofa sale are significant, making the IPO a more favorable route.

Jacobsonalso said it makes sense to proceed with the IPO. "With the struggles at iHeartand Cumulus, CBS Radio was never going to find any one company to buy the stationslock, stock and barrel," he said.

Nielsonthinks there will be "an appetite" for the IPO, with only 20% of the sharesgoing out to the public markets.

Still,he envisions the divestiture of some properties as a longer-term play. "Goingforward, you could see some spinoff of stations," with more opportunities arisingafter potential iHeart and Cumulus restructurings, he said.