Case Study: Radio One, Inc.
- Part A Corporate Valuation Date: 21-09-2009 Instructor: Dr. Oliver Spalt Course: 323058
Faculty Economics and Business Administration, Tilburg University
P.W. Segers J.J.T.M. Zegers
1. Radio One’s opportunities and risks with respect to their acquisition policy We have identified four main benefits and five major risks with respect to the desired acquisition of 12 urban stations along with the nine stations in Charlotte, Augusta and Indianapolis. Potential benefits: 1. After the acquisition of the 12 urban stations, Radio One becomes the market leader in the African-American segment. The market leader is usually the most attractive negotiator for advertisement …show more content…
To finish step 3, we calculated the terminal value for 2004 and discounted this value back to 2000. The last step is to calculate the present value in 2000 for the FFCFs between 2001 and 2004. This number is added to the terminal value as we calculated in step 3. This is the enterprise value of the 21 stations based on a discounted cash flow analysis. Hence, the enterprise value of the 21 stations together is $1,334,037,217.
3. Radio One’s offer based on transaction and trading multiples Transaction multiples: The transaction multiples method takes into account the value paid for similar transactions in the industry and benchmarks it against certain parameters, like value/BCF ratio. Table 3.1 shows the transactions in the radio industry of similar quality stations.
Company name: Infinity Broadcasting Cox Radio Paid $1,400,000,000 $380,000,000 Paid / BCF 21.5 18.4 BCF $65,116,279.07 $20,652,173.91 Number of stations 18 7 Paid per Station $77,777,777.78 $54,285,714.29
Table 3.1: transactions in the radio industry of similar quality stations.
Due to the stations were of similar quality to those purchased by Infinity Broadcasting and Cox Radio, a transaction multiple of 20 (given in the case) can be used.