Cumulus Media officially handed WNSH New York over to Entercom yesterday as a broader exchange between the two companies reached the closing table. It’s just one in a spate of recent swaps and sales and Cumulus appears ready to cut more deals in the months ahead. “We would expect to execute more of these types of portfolio optimization transactions as time goes on, continuing to employ a disciplined and strategic approach to any opportunity that we develop or that comes our way,” CEO Mary Berner told investors last week.
Cumulus intends to offload stations it has deemed non-core, such as heritage rocker KLOS, its standalone FM in Los Angeles, which is going to Meruelo Media for $43 million. That sale, along with the $103.5 million divestiture of six stations – including New York’s WPLJ and Washington, DC’s WRQX – to Educational Media Foundation are part of a plan to cash out of markets where Cumulus has determined it can’t be the No. 1 or No. 2 ranked market cluster. The $120 million in net proceeds Cumulus expects to pocket in the next several months from these two deals will be used to pay down debt and invest in other parts of the company’s business.
Digging deeper into the financials, Collin Jones, senior VP of corporate development and strategy, said the sale of some of its largest market stations to EMF will deliver net proceeds of $80 million to $90 million. The stations involved in this sale – which also include news/talk “Talk 106.7” WYAY Atlanta, alternative KFFG (97.7) San Jose, hot AC “102.1 The Sound” WZAT Savannah, and classic rock “The Rebel 105.9” WXTL Syracuse, NY – contributed $25 million to $27 million in annual revenue, and $5 million to $7 million in cash flow. The KLOS sale, by Jones estimate, is expected to bring in net proceeds “in the mid to high $30 million” range. KLOS contributed $17 million to $19 million of annual revenue and had nearly $5 million of cash flow.
The plan is to use the cash from both sales to pay down debt as soon as the deals close, Jones elaborated, which would lower the company’s leverage ratio to about 4.8 times, a big improvement from the 5.8 times the company was at when it emerged from Chapter 11 bankruptcy protection less than a year ago. “We're very pleased with the progress that has been made to aggressively reduce leverage,” Berner offered during the company’s earnings call with investors last week. The $120 million in total proceeds came at the expense of less than $11 million in annual cash flow to the company.
Swaps are the other component to the Cumulus “portfolio optimization” plan. Two have been announced so far – with more expected. In the swap with Entercom that closed yesterday, WNSH and an AM-FM combo in Springfield, MA that includes AC WMAS-FM (94.7) and country “Nash Icon” WHLL (1450), plus the Springfield, MA-licensed translator W251CT at 98.1 FM, are now under Entercom’s ownership. In exchange, Cumulus has taken ownership of three stations in Indianapolis from Entercom, including hot AC “107.9 The Mix” WNTR, CHR WZPL (99.5) and “CBS Sports 1430” WXNT.
In a second swap announced one month ago, Cumulus will pick up classic rock “99.9 The Hawk” WODE-FM, alternative “Spin Radio 107.1” WWYY, and the “Fox Sports Radio” simulcast of WEEX (1230) and WTKZ (1320) in and around Allentown, PA from Connoisseur Media. In exchange, Connoisseur gets AC WEBE (107.9) in Westport, CT and news/talk WICC-AM in Bridgeport, CT. The parties began programming each other’s respective stations under local marketing agreements on May 1.
“From a financial standpoint, these were both essentially equivalent cash flow swaps, so there isn't any immediate impact from those,” Jones explained to investors. “However, in both swaps, we are now the clear leader in the two markets where we gain stations, which positions us well for long-term success in those markets. And there are, of course, some expense synergies from the swaps which will benefit both markets as well.”
Or as Berner put it, “We believe the bolstering our presence in both these markets sets us up well for long-term success and with synergies, the transactions are nicely accretive in the short-term.”
After announcing four deals in two months, Cumulus appears poised to strike more sales or swaps in the coming months. While the company isn’t providing specifics and maintains that it has no plans to exit all of its big markets, some brokers anticipate more deal making in the top 15 markets. “Every top 15 market cluster owned by Cumulus, other than Dallas, is on the block,” says one broker who has connections to the company.