CBS Radio To Merge With Entercom(ETM) In Reverse Morris Trust Transaction

Last March, we reported that CBS(CBS) was considering ‘strategic options’ for its radio business.  After it was unable to find a buyer, the company moved forward with plans for an IPO and spinoff of CBS Radio. Today, the company again announced a change of plans. Instead of an IPO, the company will be spun off and immediately merge with Entercom(ETM) in a Reverse Morris Trust transaction which is expected to be tax free to shareholders. The spinoff will be an exchange offer, and CBS shareholders “will have the opportunity to exchange all, some, or none of their CBS shares for CBS Radio shares.” The deal is expected to close in the second half of 2017.

CBS shareholders will own 72% of the combined company, which will have 244 stations,  $1.7 billion in annual revenue, and $500 million in adjusted EBITDA. David Field, CEO of Entercom, will continue to lead the combined company, which will take the Entercom name. Five of nine directors will come from Entercom.

“This agreement is great for shareholders and achieves our previously stated objectives by separating our radio business in the best possible way,” said Leslie Moonves, Chairman and Chief Executive Officer, CBS Corporation. “Entercom is a superbly run company, and together with CBS Radio’s powerful brands and remarkable people, we are creating an organization that will be even better positioned to succeed in this rapidly evolving media landscape.”

David J. Field, President and CEO of Entercom, who will lead the combined company, said, “These two great companies, with their impressive histories, complementary assets, and premier content and brands, are a perfect strategic and cultural fit, enabling us to deliver local connection on a national scale and drive accelerated growth. We look forward to welcoming our talented new colleagues at CBS Radio, and we have the utmost respect for their significant contributions to the industry.”

Mr. Field continued, “Radio reaches more Americans than any other medium, and offers advertisers outstanding ROI and local activation. This transformational transaction creates scale-driven efficiencies and opportunities to compete more effectively with other media to better serve our listeners and our advertisers. The combination of a compelling strategic fit, an excellent balance sheet, and robust free cash flow generation, position us to create significant shareholder value for our investors.”

CBS, which spun off Viacom(VIA) a decade ago and recently flirted with reacquiring it, continues to hone its focus in a changing media landscape. Interestingly, in June 2007, Disney(DIS) spun off and merged its ABC radio business in a Reverse Morris Trust transaction with Citadel Broadcasting. Due to the heavy debt the spinoff was burdened with, Citadel later filed for bankruptcy and was later purchased by Cumulus Media(CMLS), itself now struggling with crushing debt. Obviously, there are high hopes here for Entercom, but radio is a changing industry whose future is uncertain. It will be interesting to watch what path Entercom takes.

Disclosure: The author owns shares of Disney