Finance seminar: Stocks in the tank, but station prices still high

"Radio is the caboose on the ad track to recovery," said Bear Stearns analyst Victor Miller as he kicked off the broadcast financing session that opened the NAB Radio Show in San Diego. He reviewed the glum facts that everyone in the audience already knew - - that radio stocks are down over 33% this year because of soft ad sales. Going forward, he sees a division in prospects - - with healthy growth for niche players in Spanish, Urban and Religious radio, OK growth for groups who don't compete with those niche players (such as Cumulus and Citadel), and no growth for groups who do compete with the niche players, including industry giant Clear Channel.

But while things are still rocky in the radio revenue area, panelists said the market is still hot for selling radio stations. "When attractive properties come to market, there are plenty of buyers," said broker Jody McCoy of Media Services Group. Lender Stephen Schwartz of Wells Fargo Foothill said the decline in public stock prices may have some impact on collateral values in evaluating loans to private companies, but he said lenders mostly look at stick values for support rather than stock values. So it looks like private companies will be able to continue to buy up any good stations that come onto the market, even if the public companies are constrained by their stock prices. In fact, Matthew Altman of Arlington Capital Partners said his equity investment group will soon be announcing a deal launching a new group targeting large market acquisitions.

As for the public guys, it may be time to focus on buying back stock rather than adding stations. With his stock now trading around 13 times cash flow, Cumulus CEO Lew Dickey noted that he would have to buy stations at 10-12 times in order to be accretive on Wall Street. Sellers don't want to sell at that level he said, so it has stalled the acquisition market for the public companies. "We'll continue to buy our stock back until we can find deals that make sense and are truly accretive," he said.

Panelists seemed undeterred by the FCC's new ownership rules. "Ironically, this was supposed to re-regulate radio, but it seems to have had the opposite effect," said Dickey. In his view, the use of Arbitron market boundaries will embolden consolidators, particularly in the medium and smaller markets. He noted that groups will now be able to buy full clusters in adjacent markets (Mobile and Pensacola was one example he cited) where they had previously been held back by overlapping contours. But since clusters may have to be broken up when sold because they don't comply with the new limits, Dickey also warned that there could be some "orphan" stations left out - - generally weaker signals that had been viable because they were in large clusters. "Many of them, I think, will go dark," Dickey said.