NEW YORK — Hicks, Muse, Tate & Furst’s $2.1 billion acquisition of SFX Broadcasting, confirmed Monday, brings to $3.8 billion the money spent on broadcasting by the Dallas investment firm in just the past two weeks and more than $5 billion invested in broadcasting altogether.
While its spate of acquisitions has made Hicks, Muse a major player in broadcasting, some Wall Streeters question whether the firm is overpaying.
Hicks said Monday it signed a definitive agreement to acquire SFX for $1.1 billion in cash, or $75 a share, and assumption of $900 million in debt. SFX stock rose $6 to close at $74.12 on the news.
Just two weeks ago, Hicks, Muse announced the $1.7 billion acquisition of Lin Television Corp. Hicks will put a total of $1 billion into these two deals, $400 million into the SFX acquisition and $600 million into the Lin deal.
Hicks has plenty of cash. A successful money manager for pension funds and other institutional investors, it raised $2.6 billion for its third equity fund in the spring. The cash for the Lin and SFX acquisitions is coming from that fund, a spokesman said.
Earlier funds have raised much less. The firm started in 1989 and its first equity fund raised just $250 million, while its second fund raised $800 million — the increase reflecting Hicks’ success as an investor.
Hicks spokesman Roy Winnick emphasized that Hicks, Muse did not measure its success by the growing size of its equity funds but “by the returns we generate for our investors which have historically been in the 35% to 40% range” (per year).
Only 30% of Hicks, Muse’s portfolio is in broadcasting, Winnick said, with other investments in industries such as real estate and food. But Hicks, Muse has been the most aggressive financial buyer in the broadcasting industry in the past few years, Morgan Stanley analyst Frank Bodenchak said.
Its second equity fund financed a controlling stake in Chancellor Broadcasting, which began buying up radio stations in 1994 with deals like the acquisition of Shamrock Broadcasting from the family of Roy Disney.
Chancellor will next week complete a merger with Evergreen Media Corp. to become the No. 2 radio broadcaster in the U.S., by revenue, after CBS. Hicks, Muse will emerge from that deal with about 15.7% of the stock of the new Chancellor Media, making it easily the biggest shareholder.
Hicks is not putting SFX together with Chancellor, or at least not yet. Instead, SFX will be merged into Hicks’ 61%-owned Capstar Broadcasting, forming a company that will be the No. 3 radio group based on revenue and, with 314 stations, No. 1 based on station count. Capstar has been actively buying up stations and has spent $1.3 billion on radio station acquisitions in the past year.
Capstar and Chancellor tend to focus on different size markets — while Chancellor’s stations are all in top 50 markets, Capstar’s are predominantly in markets from 50 to 150, although Winnick noted that 39 of SFX’s 71 stations are in top 50 markets.
A merger of Capstar and Chancellor hasn’t been ruled out. Winnick said it was a “theoretical possibility but they have no immediate plans to do so.”
More likely is a public stock offering for Capstar, which is now privately held, with its ownership divided between the Hicks, Muse funds and a group of individuals who include Hicks, Muse chairman Tom Hicks and his brother Steve.
The Hicks brothers received their stock in Capstar after selling their privately held radio station group Gulfstar into Capstar earlier this year. While Tom Hicks is a financier, Steve Hicks has spent 26 years in radio broadcasting, co-founding SFX with its chairman, Bob Sillerman, in 1993.
Steve Hicks now runs Capstar and will continue as CEO of the combined group, while his brother Tom will be chairman of the combined company.
How many more deals Hicks, Muse will do in radio broadcasting is unclear. Winnick said the “hallmark of Hicks, Muse’s strategy has always been to buy and build,” and he said that has not changed. When it announced the acquisition of Lin earlier this month, Hicks, Muse said Lin would be a platform to do further acquisitions.
Prices in radio are rising, however, and some question how much further Hicks, Muse can go. Like all investment funds that buy companies in deals such as these, Hicks, Muse’s strategy is to sell its assets within five to seven years.
But making money on the ultimate sale requires that Hicks, Muse does not overpay at the beginning. One investment banker said Hicks, Muse had “gone beyond the point at which a financial buyer would have stopped.”
Analysts said Hicks, Muse’s price for SFX was as high as any recent deal. One banker said SFX chairman Bob Sillerman was known for his investing savvy and his decision to sell was crucial.
“Sillerman is known for knowing when to get out, so if he is out, then there is a message that suggests maybe it’s time for other people to get out,” the banker said.