The Gores Group LLC, a private equity firm, has committed to investing up to 100 million in Westwood One. The company’s long-depressed stock price jumped on the news yesterday, so Gores is already ahead on its deal to buy shares at a buck-75.
"This investment is a key element of our strategic process to enhance shareholder value and an important component in satisfying the conditions to closing our proposed agreements with CBS Radio. The investment by The Gores Group in Westwood One represents a significant vote of confidence in the future of our business. Coupled with the new long-term arrangement with CBS Radio recently approved by our shareholders, this transaction enables us to position an independent Westwood One for future growth and success," said WW1 President and CEO Thomas Beusse.
“This investment brings with it Alec Gores’ and his team’s considerable operational resources and provides the Company with significant resources to once again focus on the production of quality original programming for our current and emerging media platforms,” added WW1 founder and Chairman Norm Pattiz.
Under the complicated deal, Gores will purchase 12.5 million of Westwood One common stock at a price of 1.75 per share. The purchase is anticipated to close concurrent with the closing of the CBS agreements. At WW1’s option, Gores also will purchase up to an additional 12.5 million of common stock at 1.75 per share and between 50 and 75 million of 7.5% Series A Convertible Preferred Stock with an initial conversion price of 3.00 per share and warrants (issued in three tranches) to purchase up to 10 million shares of WW1 common stock at strike prices of five, six and seven bucks. In addition, following 18 months from the date of issuance, WW1 may cause the conversion of the Convertible Preferred Stock if the per share closing price of the WW1 common stock equals or exceeds four bucks for 60 trading days in any 90 day trading period or WW1 sells 50 million or more of common stock to a third party at a price per share of at least four bucks. The Convertible Preferred Stock will be redeemable at Westwood One’s option after 57 months from the date of issuance. Any common stock issued to Gores in connection with the securities will have registration rights.
RBR/TVBR observation: News of this deal was well received on Wall Street. WW1’s stock had been beaten down severely as the company went through a succession of tough quarters. Right now WW1 needs a cash cushion and Bear Stearns analyst Chris Ensley noted that the 100 million from Gores will help alleviate credit concerns as WW1 moves to stand on its own without CBS Radio management. But Ensley is not thrilled with the terms. “Issuing equity at 1.75 is not a great sign, in our opinion. If Westwood One had good news to report over the next few months, management could have waited and issued equity on more favorable terms. Instead, issuing stock at 1.75 might suggest that either 1) business trends are weaker than we expect, or that 2) Westwood One’s growth initiatives may require more investment spending than we have targeted,” the analyst told investors. Still, he said the negatives outweighed the positives for WW1 going forward. We would agree that it was a deal that needed to be done and now the brand new CEO, Beusse, can get on with positioning an independent Westwood One for growth.