Westwood One shares rose yesterday, but not dramatically (only single digits), after sealing a long-awaited deal to separate its management from CBS Radio but continue its programming and distribution deal with CBS Radio through March 2017 (10/3/07 RBR #193). Wall Street analysts say the deal removes some uncertainty for WW1, but there are still issues remaining to be dealt with.
At Bear Stearns, Chris Ensley, Vic Miller and Tracy Young note that the renegotiated deal will allow WW1 (stock ticker "WON") to focus on operations, put the company in a better position to negotiate an amendment of its bank covenants and free the company to pursue strategic initiatives. "The CBS deal is a positive, but it was also expected (in our opinion). Additional concerns remain. The most pressing is a covenant that WON is likely to breach on 3/31/08, when WON’s bank/bond coverage ratio drops from 4.0 times to 3.5 times. If this were only a bank debt issue, we wouldn’t be as concerned, but bondholders may be less forgiving than banks," they said in a note to clients. Bear Stearns maintains a "Peer Perform" rating on the stock.
Goldman Sachs analysts Mark Wienkes, Michael Liddell and Travis Kososki are sticking with their "Sell" rating. The reworked relationship with CBS had been expected and they still see lots of questions to be answered: "What is the definition of the ‘adequate financing’ that Westwood One must satisfy prior to closing and after having paid CBS all amounts owed? How will the banks look upon extending credit that could be used for investments or acquisitions in the renegotiation of the credit agreements? What will change with the existing non-compete agreements that survive and why do the surviving only extend for 2.5 years of a 10-year deal? What claims have Westwood and CBS agreed to release against each other, and will current and former shareholders agree with this position? What are the competitor implications if Westwood discloses the pricing schedules for CBS’s audience in the proxy to be filed on 11/10/07?"
