Chancellor, Capstar hit high notes; merger nears

Hicks, Muse- controlled radio congloms report rev rise

NEW YORK — Chancellor Media Corp. and Capstar Broadcasting Corp., two radio congloms slated to merge next month, reported sharp increases in first-quarter cash flow Wednesday on dramatically higher revenues fueled by market-share gains and industry-wide ad growth.

Shareholders on record on May 19 are due to vote on the merger in June. But the outcome seems assured because both publicly-traded companies are controlled by Dallas-based buyout firm Hicks, Muse Tate & Furst, which initiated and approved the plan to bring the two entities together as the country’s largest radio group.

The other major hurdle would have been regulatory. But James E. de Castro, the president and CEO of Chancellor Radio and Outdoor Group, revealed during a conference call about his company’s results that the appropriate agency had decided not to review the merger.De Castro also addressed the leadership shakeup in the quarter ended March 31 that ended the brief career of cable veteran Jeff Marcus as Chancellor’s CEO.

“Stay tuned to that dial,” de Castro, a 25-plus year radio veteran, said before releasing a litany of financials including results 15 % better than Wall Street expectations. “The radio operators are now in control.”

Street happy

Wall Street, which pushed Chancellor’s stock up 3.4% Wednesday to close at $56.94, had every reason to stay tuned as de Castro reported revenues up 50% to $350.7 million.

And while Chancellor’s net loss to common shareholders widened 31.7% to $109.9 million, nearly $150 million of that was attributed to such non-cash flow items as depreciation and amortization.

The company also cited a $29 million nonrecurring charge related to the executive shake-up, the termination of a merger agreement between Chancellor and fellow Hicks Muse property LIN Television Corp., and the reversal of an agreement to acquire Petry Media Corp.

Unburdened by such items, Chancellor’s cash flow (earnings before interest, taxes, depreciation and amortization) galloped ahead 57.4% to $123.9 million.

Adjusted for the timing of acquisitions, Chancellor said that the radio stations it owns or operates today would have reported revenue gains of 17.8% and cash flow gains of 23.8%.

The only drag on the company was its outdoor division, which de Castro admitted was “still coming together.”

Chancellor Outdoor, the country’s fifth-largest company of its kind, increased its cash flow 2.6% on revenues gain of 6%.

The division, representing about 20% of the company, confronted the loss of tobacco advertising, which accounted for about 10% of display revenues in the year-earlier period.

Outdoor was also called “a victim of transition” as Chancellor continued to bring parts of the division together under single management.

Hick Muse head Tom Hicks professed to be as pleased as de Castro not only with Chancellor’s results but with the new management regime.

“The company is in a position where the noise is settling down and the fundamentals are taking over,” he said. “The is primarily a radio company, with outdoor assets, managed by radio executives.”

All the more so when Capstar adds 340 stations next month to Chancellor’s 465 total.

In what will likely be its last quarter as a stand-alone entity, Capstar said its cash flow posted a 205.4% increase to $49.8 million in the first quarter as net sales ratcheted up 121.6% to $142.0 million.

The company’s net loss widened 7% to $31.9 million, reflecting, again, such non-cash flow items as depreciation and amortization.

Adjusted for the timing of acquisition, Capstar said its cash flow jumped 20.1% while revenues gained 11.8%.

Capstar stock rose 3.3% Wednesday to close at $27.62.