Case ID: 201025     Solution ID: 22192     Words: 2137 Price $ 75

Radio One Inc Case Solution

Case Solution

Radio One (NYSE: ROIA and RIOAK), the top of the line and most successful radio group that targets African-Americans in the country had the chance to gain access to 12 urban stations in the chief 50 markets from clear channel Communications, Inc (NYSE: CCU) in 2000 winters. The stations were retailed by Clear channel communications in order to gain Federal communications Commission (FCC) consent for its purchase of AMFM, Inv. (NYSE: SFM). Radio One was also conferring the buying of nine different stations in Charlotte, North Carolina, Augusta, Georgia, and Indianapolis, Indiana. The offered purchases would increase the size of Radio One to double its present one. The case emphasizes on the planning and the financial assessment of the offered purchases.

Excel Calculations

Calculation of After-tax Cash Flow (amounts in thousands of dollars)

Free Cash Flow (after-tax), Net Working Capital

Discount Rate Calculation

 Cost of Debt. Cost of Equity, WACC

Discounted Cash Flow Valuation (amounts in thousands of dollars)

Terminal Value Calculation, Terminal Value (in 2004), Total Value of the New Stations, Present Value of Cash Flows

Value Based on Trading Multiples

 BCF, EBITDA, After-tax Cash Flow, Average Value (trading multiples)

Questions Covered

Why does Radio One want to acquire 12 urban stations from ClearChannel Communications in the top 50 markets along with the nine stations in Charlotte, NC, Augusta, GA, and Indianapolis, ID? What are the benefits and risks?

Are the cash flow projections for the potential new markets reasonable?

What are the incremental after-tax cash flows for 2001 through 2004 for the potential new markets? Use the information in Exhibit 9 along with your estimate of capital expenditures, working capital, and taxes to estimate the after-tax cash flows.

What discount rate is appropriate for valuing the after-tax cash flows?

What terminal value should be used to estimate the value of cash flows beyond 2004?

What price should Radio One offer based on the discounted cash flow analysis?

What price should Radio One offer based on a transaction and trading multiples analysis?

Assuming that Radio One’s stock price is 30X BCF, can it offer as much as 30X BCF for the new stations?

What should Radio One offer for the new stations?