Clear Channel’s Katz Media Group has stepped up to the table and signed a formal offer to the bankruptcy trustee to pay $3.64 million to have all radio clients released from their national rep contracts with Interep, leaving them free to negotiate with Katz or anyone else. But don’t jump the gun. Those contracts are still binding until the bankruptcy judge holds a hearing in a couple of weeks, but the Katz move puts pressure on other potential bidders to put up or shut up.
If US Bankruptcy Judge Robert Drain grants the motion to approve the Katz contract on November 25th, current Interep radio clients – the largest of which are CBS Radio and Entercom – would be free to negotiate with Katz for national representation, sign with another rep firm (existing or yet to be created) or take their national business in-house. CBS, in fact, used to have its own rep firm. Katz would also be free then to negotiate with and potentially hire Interep employees who are currently bound by contracts. In addition to the $3.64 million it is offering for the contract release deal, Katz is still bound to pay nearly $16 million in contract termination payments for clients such as Citadel and Cumulus who jumped from Interep in the past. All of that cash will go to Interep creditors after the costs of operating in bankruptcy are covered.
But, between now and that court hearing, bankruptcy trustee Kenneth Silverman is still free to negotiate with those other four or so parties who have expressed an interest in all or part of Interep. Nothing is final in bankruptcy until the judge says it is final.
It is conceivable that one of those other bidders could top the Katz offer for the radio rep operations. And there are other assets to be sold as well which are not covered by the Katz offer, such as the two Hispanic television rep firms, the interactive business and such.
Until Judge Drain rules on November 25th, nothing changes. Interep’s radio clients are still bound by their contracts and the rep firm is continuing to sell national spot on their behalf. But those Interep clients now have a couple of weeks to ponder their own next move. Might the big guys take the rep business in house? Will a new independent rep firm be created by groups who don’t want to be represented by a Clear Channel subsidiary? Will some stations decide they will be just fine with representation by one of the smaller, regional rep operations?
According to the filing that Silverman made with the court yesterday, many of the rep agreements with Interep state that they are personal service contracts which are not assumable or assignable under the Bankruptcy Code. That point might be subject to legal dispute, but Silverman notes that if they were held to be personal service contracts he wouldn’t have the ability to sell them without the agreement of the clients. Also, he can’t go on operating Interep indefinitely in Chapter 7. So, he concluded that the proposed deal with Katz provides “fair and reasonable value” to the bankruptcy estate.
RBR/TVBR observation: As previously reported, at least five suitors were in the hunt for all or part of Interep. Now we see whether any of the other four are willing to put up their cash and sign a contract. The $3.64 million offer from Katz isn’t much – but it isn’t buying much, either, just paying to have the radio rep contracts released so it can bid for the business. That leaves other options open to station clients. The easy out, though, is simply to sign a deal with Katz.
Will the national radio rep business complete its consolidation and become a natural monopoly? Years ago we heard a lot of concern from radio group heads about having the dominant player in the rep business owned by their competitor, Clear Channel. But some of those who voiced concerns years ago have since changed their tune and become Katz clients. Certainly the idea of maintaining an alternative would be welcomed by most in the radio industry, but liking the idea is one thing – being willing to put your own money on the line to make it happen is another.