Cumulus Media has secured government approval to become as much as 100% foreign-owned. The Federal Communications Commission on Friday approved a petition filed by the company, saying its approval would likely enable Cumulus to be in a stronger financial condition post-bankruptcy.
“We find that the public interest would not be served by prohibiting foreign ownership of Cumulus, the owner of nearly 450 radio broadcast station licenses, in excess of the 25% benchmark,” Audio Division Chief Albert Shuldiner wrote in the declaratory ruling. He said by giving Cumulus more leeway, the company would have “greater flexibility” to access foreign investment dollars and in turn would be able to better compete with other media companies.
The only condition that the FCC put on Cumulus is that it will need to obtain specific approval for any foreign individual, entity, or group that seeks to hold more than five percent of the equity and/or voting interests in the company. In some cases however that limit will be raised to 10%. Cumulus will also need to alert the Media Bureau if it becomes aware that it has fallen out of compliance with that requirement.
There were signals from Washington earlier this year that the government would allow Cumulus to become the latest radio group to exceed the long-held 25% cap on foreign ownership. Team Telecom – the interagency federal government group that analyzes requests for national security, law enforcement, and public safety issues – gave its approval to the proposal in February.
Cumulus filed a petition seeking permission to boost its foreign ownership beyond the 25% cap in July 2018. The move is, in large part, an extension of its bankruptcy reorganization plan. Under the debt-for-equity swap agreement with its lenders that reduced Cumulus’ total debt from $2.34 billion to $1.30 billion, the company awarded 83.5% of the new stock to the former lenders and 16.5% to the general unsecured creditors. The company said in its request that as a result there are “numerous” new stockholders, some of which are foreign-owned.
To speed approval of its reorganization, Cumulus crafted a two share class mechanism that capped offshore investors from holding no more than a 22.5% direct interest – in order to avoid seeking a waiver from the government’s 25% cap on foreign ownership of radio and television stations.
Then-CFO John Abbot told investors earlier this year that one of the outcomes will be to allow Cumulus to simplify the two-share class structure and convert warrants into the single class of stock that already trades on the Nasdaq. “We think its resolution will be an important step forward in enhancing the liquidity of our Class A shares by making it easier to convert the warrants into Class A shares,” he said.
The number of radio groups that have lined-up offshore investors has grown in the past few years. Proposals similar to what Cumulus filed are currently pending before Team Telecom from iHeartMedia and from Univision’s proposed new owners, a group that includes Mexican broadcaster Televisa.
The FCC has increasingly been more open to waiving broadcasters past the caps on foreign ownership for radio that date to the 1930s. In an effort to simplify that process, the FCC voted in 2016 to streamline the process and standardize the review procedure for deals that proposed going past the 25% foreign ownership benchmark.
In April President Trump issued an executive order that formally established the review process that applications need to go through in order to be approved by the FCC. Under the new guidance, the undertaking will not only be more clear-cut but it will also give the White House greater influence on Team Telecom as it analyzes a proposed transaction.