CBS Corp. has unveiled plans to merge its radio division with Philadelphia-based Entercom Communications, creating a broadcast platform with 244 stations and national reach across major markets.
The surprise deal with Entercom means that CBS has scrapped plans for an IPO spinoff of its radio division, as it had been planning for months. The complex merger agreement that will leave CBS shareholders with 72% of the enlarged Entercom is said to have come together in the past few weeks. The deal marks CBS’ separation from the business that Eye founder William S. Paley used to launch the Columbia Broadcasting System in 1927.
“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 CEO of CBS. “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.”
CBS last February announced plans to divest its radio division, which had become a drag on earnings and was not a strong fit with its content-focused strategy. CBS shopped the division around to prospective suitors but eventually settled on plans to divest through a spinoff as a stand-alone public entity. The Entercom announcement caught observers by surprise on Thursday.
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“This transformational transaction creates scale-driven efficiencies and opportunities to compete more effectively with other media to better serve our listeners and our advertisers,” said David J. Field, Entercom president and CEO. “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.”
Field will remain CEO of the combined company. CBS Radio president and CEO Andre Fernandez is expected to exit after the deal closes, which CBS estimated would be in the second quarter.
The combined company will have post-merger revenue of $1.7 billion and cash flow of nearly $500 million. According to CBS, the deal is designed to be tax-free to CBS shareholders through a complex process known as a reverse Morris trust, which begins with an offer to existing CBS Corp. shareholders to exchange their stock for shares in CBS Radio, which will eventually become the enlarged Entercom.
The final price tag on the deal for CBS is unclear, but the Eye intends to use the proceeds to buy back CBS Corp. shares.
Entercom will rank as the nation’s second-largest radio firm behind iHeartMedia Inc. The company will have stations in 23 of the top 25 markets including CBS’ powerhouse news and sports outlets in New York, Los Angeles and Chicago. The sale also includes the CBS Sports Radio Network operation that has 300 station affiliates around the country.
Entercom was previously the fourth-largest radio station owner with 127 stations in 27 markets.
