We’ve heard much discussion of that question and Bear Stearns analyst Victor Miller notes that the current stock price indicates “strong doubts” on Wall Street about a closing. But whether or not the going private transaction gets done at the 11.75 per share price announced last July, Miller says it is likely that Cumulus will be taken private in 2008.
The analyst says the implied takeout price of the 1.3 billion bucks buyout is 11 times anticipated 2008 EBITDA, which was “not aggressive” relative to other 2005-2007 deals. However, since the July announcement radio trading multiples have contracted by 2.3 times. Still, Miller says Cumulus has some good stories to tell in 2008, with mid- to small-markets healthier than the big ones, political ads coming in, an NYC move-in and easier comps than some other companies.
“We still think Cumulus could very likely be private in 2008. The Dickey family can roll 60 million plus in equity. Cumulus’ CFO negotiated a bank line in June 2007 that permits Cumulus to borrow up to 8.5x EBITDA at attractive rates,” Miller told clients. He sees three possible scenarios for the company to go private this year: 1) the original 11.75 per share deal with Merrill Lynch Global Private Equity happens; 2) the MLPGE deal gets re-cut to 10.75; or 3) MLPGE balks and the company uses its 8.5x EBITDA borrowing capacity to repurchase its 27.75 mil share float. The latter assumes that the Dickey family and original investor Bank of America roll in their equity. “All three options point to a privatization; Cumulus’ current lows may be a buying opportunity. If no ‘privatization options’ are ultimately done, the stock should trade at 4.75-5.00, in-line with comps,” Miller concluded.