NEW YORK – After months of speculation, Viacom Inc. has begun efforts to sell its radio station group, holding talks with a range of radio operators, industry sources said. But according to insiders, Viacom chairman Sumner Redstone’s price expectations already are proving a stumbling block.
Viacom, which is putting the stations up for sale as part of its commitment to reduce its debt, is believed to have discussed a possible sale with leading radio operators such as Infinity Broadcasting, which now is a unit of Westinghouse Electric Group, Evergreen Media and Emmis Broadcasting. Neither Emmis nor Infinity would comment, while an Evergreen spokesman said Evergreen talks to people about potential deals all the time.
But the big issue is price: Redstone is said to be asking $1.4 billion to $1.5 billion for the nine-station group, according to some sources, which industry execs believe is too high.
People close to Viacom dismiss that price, but no one denies Redstone wants more than $1 billion – still a couple of hundred million dollars higher than the group is thought to be worth. Lehman Bros. analyst Tim Wallace estimated that the radio group had cash flow in 1996 of $54 million, which on a multiple of 15 would value it at $825 million.
Wallace said such a multiple is appropriate given other deals. Westinghouse acquired Infinity for 18 times cash flow, but Infinity came with star exec Mel Karmazin, Wallace added.
Viacom’s group, which includes stations in New York, Los Angeles and Chicago, would be valuable for any of the major players given the ability to own several stations in the one market. “Clearly the stations are worth more to somebody who is already in a market,” one industry exec said.
Perversely, Viacom’s pricing demands are hurt by the strong management at the radio group, execs say, because buyers think there is little room for operating improvements that could justify a higher price.
The other problem with any deal is Viacom’s desire to minimize its tax liabilities. As Viacom has owned the stations for a long time, it would face a big capital-gains tax on a sale. One potential deal to avoid such tax complications is a spinoff of the radio stations into a new company, carrying several hundred million dollars of debt from Viacom’s balance sheet, which could be merged with the buyer.