The asking price for the eight TV stations works out to eight to 10 times estimated 2010 cash flow of $50 million. There are a number of potential buyers for the Freedom stations, particularly in a piecemeal sale. They include Gannett, LIN, Nexstar, Gray, Young’s new owners and Newport. All of those group owners own or run stations in Freedom markets.
A new book just out is causing a stir in the broadcast TV world, but you won’t find it on the bestseller lists.
The “book” is Freedom Communications’ sales prospectus for its group of eight TV stations.
Prospective title: “Freedom’s Just Another Word For Nothing Left To Lose.” Subtitle: “Freedom Ain’t Free.”
Definitely not free. According to sources familiar with the prospectus, Freedom is asking $400 million to $500 million for the disparate group whose flagship is WPEC, the CBS affiliate in West Palm Beach, Fla. (DMA 38).
The aggressive asking price, coupled with an M&A market still largely in hibernation and the far-flung geography of the stations, likely will make it a tough sell, one analyst thinks.
“It’s going to be a challenge,” says Barry Lucas of Gabelli & Co., noting that he had not seen the Freedom book. “It’s a tough mix of stations in an uncertain environment. It’s going to be tough to get financing.”
Freedom Communications also owns 25 daily newspapers, including the flagship Orange County [Calif.] Register, and 16 weekly papers. But it has issued a separate book for the newspapers.
In addition to WPEC, Freedom Broadcasting comprises WWMT (CBS) Kalamazoo, Mich., (DMA 39); WRGB (CBS) Albany-Schenectady, N.Y., (DMA 56) in a duopoly with WCWN (CW); WTVC (ABC) Chattanooga, Tenn. (DMA 86); WLAJ (ABC) Lansing, Mich. (DMA 112); KTVL (CBS) Medford, Ore. (DMA 140); and KFDM (CBS) Beaumont, Texas (DMA 141).
The asking price for the station group translates to eight to 10 times estimated 2010 cash flow of $50 million. For broadcast properties, an asking price of eight to 10 times cash flow is considered within the realm of reason, if not likelihood.
But Freedom’s 2010 cash flow estimates tell only part of the story. Station valuations typically reflect cash flow multiples averaged over two years to accommodate on and off election cycles.
With stations in key battleground states, including Florida, Texas and Michigan, Freedom’s political ad revenues saw a significant boost this mid-term year, suggesting the $50 million estimated cash flow is at the high end.
Political revenues will mostly evaporate in 2011, pushing the average cash-flow multiple for the group higher than the 8-10 times reflected in the asking price.
Moelis & Co. is distributing the sales prospectus for the Freedom stations and managing the auction of the properties. In broadcast sector activity, Moelis earlier this year co-managed a $400 million senior secured notes offering for Entravision Communications. Moelis also managed Young Broadcasting’s failed efforts to sell its flagship station KRON San Francisco.
The market for TV stations is so quiet that it is difficult to evaluate stations.
“Obviously, 2010 has been an incredible year for lack of deals,” says Mark Fratrik,VP of BIA/Kelsey. “It’s remarkable how few TV and radio deals have gone through, largely because of the lack of available credit.
“But I’m a little heartened by the announcement of two ABC O&Os being sold,” Fratrik adds. ABC sold WJRT Flint, Mich. (DMA 68) and WTVG Toledo, Ohio (DMA 73). Transaction prices have not been disclosed.
Fratrik noted that Freedom has stations in similarly sized markets.
In Freedom’s case, its own financial data highlight the gulf between bid and ask in the station market.
That data, disclosed in Freedom bankruptcy filings, show a 2009-10 book value of 9.5-10 times cash flow for the broadcast segment. The same filings show a substantially discounted market value: 7.3-8.8 times cash flow.
Add in the newspaper segment and the numbers drop to 5.4-9.7 times cash book value and 5.4 times cash flow market value.
There are a number of potential buyers for the Freedom stations, particularly in a piecemeal sale. They include Gannett, LIN, Nexstar, Gray, Young’s new owners and Newport. All of those group owners own or run stations in Freedom markets.
Nexstar, Gray and LIN have branched out into managing stations for other owners, potentially gaining an inside track on acquiring those stations, and creating duopolies, if and when the stations go up for sale.
Other potential buyers include various private equity groups that may be looking to expand their broadcast portfolios.
Freedom’s sales push follows its emergence from Chapter 11 bankruptcy earlier this year.
Initially, Freedom had looked to strike local market agreements with station owners in its markets, a source in the broadcasting community says. Under that scenario, Freedom would have turned over operations of its stations to the other owner. However, Freedom soon reversed course and declared that it was seeking to be the operator.
Then, in October, Freedom jettisoned that idea and issued its sales prospectus for the stations.
The problems that forced Freedom into bankruptcy date back to 2004, when the company burdened itself with massive debt to buy out a faction of the founding Hoiles family.
The company brought in private equity firms Providence Equity Partners and Blackstone Group in a recapitalization that gave them a 48% stake in the company, but piled on hundreds of millions in debt.
Hamstrung by that debt and the precipitous decline in newspaper revenues, Freedom opted for Chapter 11 on Sept. 1, 2009, after attempting an unsuccessful out-of-court workout.
Freedom emerged from Chapter 11 with more than half of its $770 million in debt erased, a new board and new management.
Freedom also emerged with a new owners: Private equity/hedge fund Angelo, Gordon & Co. holds a 45% controlling interest after buying out nearly all the Providence-Blackstone debt at 30-40 cents on the dollar, according to a source.
Alden Global Capital and Luxor Capital Group are Freedom’s other owners.
In addition to its stake in Freedom, Angelo, Gordon also owns debt in crippled media giant Tribune Co., which is struggling to emerge from bankruptcy. The company’s website notes that the company’s “distressed investment activities focus on financially trouble businesses, including those involved in reorganization proceedings under Chapter 11.”
Angelo, Gordon did not respond to a request for comment on its stake in Freedom.
Predictably, Freedom’s financial turmoil spilled over into management. During bankruptcy, a new board of directors took over. New board members include James Dunning, chairman; Donald C. Grenesko; Ross Levinsohn; Sean Moriarty; Mitch Stern; and Burl Osborne. The company subsequently added Larry Kramer, founder, former chairman-CEO of MarketWatch and former CBS executive, to the board.
In one of its early moves, the board picked broadcast veteran and former LIN Television CEO Gary Chapman to serve as trustee for the broadcast division. Chapman’s responsibilities center on representing the broadcast license holders in all matters involving the FCC.
Shortly after emerging from Chapter 11, the company’s newly constituted board of directors tapped Stern, former president/CEO of Fox Television Stations, to replace veteran newspaperman Osborne as CEO/president of Freedom Communications. Osborne remains on the board.
Stern, who is also on the Freedom board, brings a wealth of broadcast sector experience to the job. In addition to his job at Fox, he was president-CEO of DirecTV’s U.S. operations before taking over at Freedom.
Last week, the company named Thomas Herwitz to replace Doreen Wade as head of the station group. Herwitz worked with Stern at Fox, where he was president of station operations from 2000 to 2005. Since 2005, Herwitz has been a consultant on broadcast acquisitions, operations and management.
Wade, a broadcast veteran, headed Freedom’s flagship station, WPEC, the CBS affiliate in West Palm Beach, Fla., before being named president of broadcasting in 2002.
Freedom referred requests for interviews with Stern and Herwitz to Sitrick & Co., a Los Angeles-headquartered public relations firm whose areas of specialization include crisis communications.
Sitrick issued the following boilerplate statement about Freedom’s efforts to sell its stations:
“Freedom has always been regularly approached regarding strategic opportunities. This is a normal part of business and, as expected, has continued following the company’s successful restructuring. It is the company’s fiduciary responsibility to review and evaluate these opportunities as they arise.”
Freedom, via Sitrick, declined to comment on specifics in its sales prospectus.