Radio one Case Writeup

RADIO ONE

Cormac O’Connor

Forrest Lin

Christopher Daylor

Sharanjit Sighn

3/18/15

Finance 463 section 001

University of South Carolina

Radio One

        Radio One was the largest radio group that targeted African-Americans in America. Their company strategy was to “provide urban-oriented music, entertainment, and information to a primarily African-American audience in as many major markets as possible.” They became successful through acquiring underperforming radio stations, altering the formats to fit their urban format, and cut costs. From 1995 to 1999 they grew from 7 stations to 28 stations. Radio One now wants to acquire more channels.

Benefits and Risks

        Given that merger of major players in the radio industry the FCC would require that some stations would have to be divested. This gave Radio One an opportunity to become a national player. They want to purchase 12 urban stations that would potentially double their size. The acquisition would make Radio One a market leader in African-American radio stations.

 There would be cost benefits to Radio One. Radio One has already had acquired stations so adding these radio stations, would not be as costly due to their experience. There would also be some synergy benefits as well.  The African-American population and radio listeners were increasing at a rapid rate and their average income was also growing. More revenue would be generated with more stations in these growing areas. These acquisition could serve as platform for expansion into other media outlets such as cable, internet sites and recording industry.

There would be some risks involved as well. The number of radio stations is more than they have had to implement into their system before causing the integration to be more difficult than past acquisitions. The synergy benefits may be lower than anticipated because there may be some cannibalization from added stations. The income statement shows that the company is making losses. The acquisition would need more financing and so servicing the debt may be an issue. (Fisher & Ruback 2003).

Cash Flow Analysis

After computing the cash flow analysis Radio one has a fair market value of $250,057,000. The amount of shares outstanding between Series A and B stock is 23,481,310.  After dividing that out Radio one should offer $10.65 per share according to the fair market value.

Yes, the cash flow projections are reasonable because they are based on the past information and take into account many of the factors involved. They take into account the expenses the growth opportunity and revenue for each of the locations.