Libert Media Makes Offer For iHeart

This is very interesting. John Malone is getting frisky in his old age:

https://radioink.com/2018/02/26/liberty-makes-pitch-invest-1-159-billion-restructered-iheart/

Keep in mind that Liberty would do this in conjunction with Sirius, and Sirius made a major investment last year in Pandora.

So this would combine the assets of a major cable company, satellite radio, and online radio with the largest broadcast radio owner and main Pandora competitor.

What would that mean in terms of negotiating music royalty deals, for example? Something to think about.

This might be considered light at the end of the tunnel.

The folks at Breitbart must be overjoyed. They already have a Sirius channel practically all to themselves, and with this, Malone could find a home for them on cable TV and terrestrial radio.

CTListener said:

The folks at Breitbart must be overjoyed. They already have a Sirius channel practically all to themselves, and with this, Malone could find a home for them on cable TV and terrestrial radio.

Click to expand...

iHeart already syndicates Rush, Hannity, and Beck, so it's basically a Breitbart service without the branding.

I should caution that this Liberty offer has a long way to go. Lot of approvals to get through.

If I'm a lender, $1.6 billion for 40% seems mighty cheap to me.

The interesting part of this offer is how speculative it is.

Start with the fact that it is based on iHeart declaring bankruptcy (which it hasn't as yet, but is likely)

Then after bankruptcy, the senior lenders will likely get 98% of the company, and some percentage of the Outdoor division.

Liberty says that it wants that Outdoor division sold for some reason.

Then it assumes the restructured company will go public, issue stock, and Liberty will buy $1.16 billion of that stock, giving it 40% of the new company, and four seats on the board.

But what about the lenders who have 98% of the company? They get the Liberty cash.

In the meantime, the newly restructured iHeart won't be debt free. It will still have $5 billion in debt left over. But that's much less than the $20 billion it had.

The bad news I see in all this is they're planning on taking the company public again. That's how they collect the money. But when you take a company public, it leaves the stock price subject to the whims of Wall Street. If you remember the last decade, Wall Street wasn't too kind to Clear Channel, which is why they went private. The Liberty offer suggests all this could be accomplished by the end of the year. Wow, buckle your seat belts.

If anybody sees any errors in my timeline, let me know. But it sounds like an ultimatum to me. John Malone is saying, "I've got $1.16 billion I'll use to buy your stock. You'll give me 40% and four board seats." And the lenders get cash for part of their equity. Which is more than they'd get if they only got equity.

They want the Outdoor Division sold to satisfy the existing creditors.

The offer is embarrassingly low for 40% of an iHeart with most of the debt discharged. I wouldn't be surprised if this offer is being made on behalf of a senior iHeart creditor to muddy the waters or try to push the restructure to a faster conclusion. I don't see this offer being accepted. Maybe if he triples it.

umfan said:

They want the Outdoor Division sold to satisfy the existing creditors.

Click to expand...

But the outdoor division is where the profit is. The creditors are fighting to control it. But yes I agree that $1.16 billion is too low for 40%. It's more like 20%.

New York Post reports the Liberty offer won't be accepted because it's too low. A major creditor says it undervalues the company.

The Post article says bankruptcy will be announced Saturday.

https://nypost.com/2018/02/26/malones-last-ditch-effort-to-buy-iheartmedia-faces-uphill-battle/

BigA. My math is not always so good.... what is $1.6 billion divided by 850? Or even $1.16B divided by 850? How would even this "deal" not end up in disaster? And that's not even half the company.

Someone is going to take one heck of a haircut no matter what happens. If Big A's scenario is correct....an almost $14B haircut.

wavo said:

Someone is going to take one heck of a haircut no matter what happens. If Big A's scenario is correct....an almost $14B haircut.

Click to expand...

Keep in mind that the lenders have been getting installment checks covering interest on the debt for ten years. So it's not like they haven't been getting any money.

The NY Post article points out they this same investment company just took a huge loss on Toys R Us. So they're used to it. Sometimes you win, sometimes you lose.

There are so many moving parts to this situation. No matter what, the prices paid for these 850 stations (and 95 percent of the other stations) and continued operating expense increases are to excessive to be able to EVER see the light of day. Look at the multiple billions lost in this industry. Bain and these other investment companies have always shocked me. They literally believe they can turn water into wine. And not just with radio stations. I think radio needs a huge, smart overhaul. This is not it! Does anyone see Liberty being able to actually turn things around and justify their investment?

Tibbs4 said:

Does anyone see Liberty being able to actually turn things around and justify their investment?

Click to expand...

Imagine if you had the combined platform of cable, satellite, broadcast, and streaming. With this, they'd own pieces of Sirius, Pandora, iHeart, and their own cable business. That gives them a lot of negotiating leverage and also gives them a massive advertising platform, in both traditional and new media. Plus they own the Atlanta Braves.

They have so much money just lying around that $1.16 billion is a drop in the bucket.

I like your thoughts! I think this plan could actually save a lot of industries. Radio needs to streamline and get a shot of "cool again" marketing and Liberty could make that happen. $1.16 billion is pocket change to you, as well. Just wanted to reaffirm that.

The investment would value the company at $2.9B. iHeart's assets are worth more than that.

It's a lowball offer that may have been made to try to prod junior note holders into accepting a settlement. Unless Liberty offers to bring far more money to the table, this offer is going nowhere.

For every billion dollars, IHeart's 850 stations would each average $1.1765M. Obviously real value of each station is market dependent. Any thoughts on what the company is REALLY worth in billions? I know that is a tough number, given real estate, etc. Multiples and all those usual method's of evaluations don't seem to make sense here, but if the proper parties can see a win-win and structure a deal that gets the investors more than the other potential offers, the company could come out of this in some form of solid shape. I agree that it is the debt, not the actual product we are talking about here. A company like Liberty could certainly agree to pay off more debt or assume a percentage and this just be a piece of the pie. I wonder if it is possible to see a bigger picture, than just turn down the offer and file.

Tibbs4 said:

For every billion dollars, IHeart's 850 stations would each average $1.1765M. Obviously real value of each station is market dependent. Any thoughts on what the company is REALLY worth in billions?

Click to expand...

According to the NY Post article:

Liberty’s offer values iHeart at $7.5 billion, a source said. Senior creditors of the company, led by Franklin Resources, believe the radio operator, led by Chief Executive Bob Pittman, is worth 12 percent more, or roughly $8.5 billion, the source said.

DavidEduardo said:

The Liberty valuation takes into account the debt that would not be dismissed by a bankruptcy. So the value of the company could be expressed as "Enterprise Value less Ongoing Debt = Cash Value".

If you buy a car from a friend for $15,000 but it still owes $10,000 and you agree to assume the loan, you only give your friend $5,000.

Click to expand...

What would a "healthy" amount of debt be for a reorganized iHeart?
If the company is now worth only $7.5-8.5B what was it worth when they loaded $20B+ in debt?
Does anyone have an estimate of radio's aggregate value now versus 20 years ago?

I guess iHeart is worth "what someone is willing to pay for it." Which, for decades was obviously way too much. I don't profess to have any idea of what it is worth. I guess if you broke down the actual assets of owned buildings and land and equipment (towers, tower leases they actually make profit on vs. pay) you could isolate that from the cost of each stations worth and get a reasonable figure. I think the industry has changed so much that these old attempts at evaluations cannot really be applied without more doom. I think it really does matter who takes them over. Liberty would bring a nice array of perimeter businesses to help. Some other people that may form a group to make a run at it may have no idea of how to run radio. If another radio company did go for it, I would sure hope they didn't go with business as usual concepts. By that, I mean, you have to seriously try to figure out what the value of the company would be in ten or twenty or more years and make sure you don't get yourself in a no win "paid to much again" situation. Especially if the industry just flat out is not viable with all the new technologies faster than expected. I admit to obviously having no clue on this, but I do find this event in radio to be a great topic of discussion. Please feel free to keep coming up with great ideas and thoughts.