Rising credit risk premiums and collapsing valuations have left the market skeptical about the viability of the July 2007, $1.3 billion management buyout offer for Cumulus Media, Inc. (CMLS). Led by CEO Lew Dickey and Merrill Lynch Global Private Equity, the deal calls for $11.75 per share plus the assumption of roughly $738.2 million in debt, equating to an EV of 12.3x 2008E EBITDA.
The stock has fallen 50% since the deal was announced and now trades at 9x 2008 EV/EBITDA, in line with the peer group multiple, which has contracted by 2x. In our view, the deal will likely get done, but at a lower price.
A takeout price near $10 represents a 69% premium to the current price and equates to a more reasonable 10x 2008E EBITDA and 8x debt/EBITDA (down from the very steep level of 9.5x). In the reported quarter, the company did not repurchase any shares. During 2006, the company repurchased 14,261,000 shares of its outstanding class A common stock or 25% of the total then outstanding, at an average price per share of $11.56 or $164.9 million.
In addition, CMLS bought back 5 million class B shares at an average price per share of $11.50 or $57.5 million. As of December 31, 2006, the company had the authority to repurchase an additional $57 million of its class A common stock but it did not. As such we retain our Buy rating on the shares with a target price of $10.
Read the full analyst report on CMLS.
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.