Metromedia And Resurgens: A Powerful UnionBy
Millionaire media mogul John Kluge is back. This time, the Kluge play is in telecommunications. His privately owned Metromedia is acquiring Resurgens Communications Group, an Atlanta-based long-distance telephone carrier. The Oct. 26 announcement of Resurgens' merger into Metromedia Communications, a subsidiary of Metromedia, has kicked up Resurgens' stock to 18 from 14 a share on the American Stock Exchange.
The betting is that the stock of the combined Resurgens-Metromedia company, which will retain the name Metromedia Communications, will move to the New York Stock Exchange early next year. Kluge, who will own 60% of the expanded Metromedia Communications, is expected to be the chairman, with Jack Phillips, Resurgens' president and CEO, taking on those same positions at the new company. Even before the move to the Big Board, several money pros figure that the Resurgens-Metromedia stock will be worth at least 36 a share, based on projected earnings of the combined companies. Together, revenues are estimated at $500 million, making the company the nation's fourth-largest long-distance carrier after American Telephone & Telegraph, MCI Communications, and Sprint.
Here's how some analysts came up with a value of 36 a share: Applying a 17% operating profit margin, they estimate profits of $85 million, or $51 million after taxes. And based on 21 million shares outstanding after the merger, per-share net comes to $2.40. With the industry trading at an average price-earnings ratio of 15, one analyst says the company deserves at least a 15 p-e. With such a ratio, the stock is worth 36. He also notes that while MCI and Sprint are trading at 1 to 1 1/2 times their annual revenues, Resurgens-Metromedia is trading at only 0.6 times revenues.
Part of the optimism about the new Metromedia Communications stems from projections by some insiders that annual revenues will easily jump to $1 billion in just a matter of months, mainly through acquisitions. Kluge already has a "task force" in place, believed to be headed by Phillips, to pursue such ventures. An investor familiar with the group's plans says deals "will be done quickly."
As a result, a group of investors who follow Kluge's moves has been snapping up Resurgens shares, says one New York money manager, "before the Street wakes up to the potentials of Resurgens." Right now, he adds, "Resurgens, with all its prospects under the Metromedia umbrella, is the cheapest buy in the business."